The Parking Lot Tax

Last year’s Tax Cuts and Jobs Act created a 21% tax on transportation-related fringe benefits provided by nonprofits.

That does not sound so bad until you consider that qualified transportation fringe benefits include:

1.    Transit passes or reimbursement for the same

2.    Use of a commuter highway vehicle or reimbursement for the same

3.    Qualified bicycle commuting reimbursement

4.    Qualified parking expenses or reimbursement for the same

That last one proved to be a shocker.

What started the issue was the new deduction disallowance for qualified transportation fringe benefits paid by taxable employers. For example, if the employer pays for employee parking, up to $260 per month can be excluded from the employee’s 2018 W-2. In the past the employer could deduct that $260 on its tax return. Now it could not. Congress felt that – if taxable employers were to be affected – then nonprofit employers should also be affected.

But how does a nonprofit even pay tax?

It can happen, and it is called unrelated business income. In general, it means that the nonprofit is veering away from its charitable mission and is conducting an activity that is virtually indistinguishable from a for-profit business next door.

The nonprofit has to separately account for this activity. The IRS then spots it a $1,000 exemption. If it has more than a $1,000 in profit then it has to pay tax at the corporate rate – which is now 21%.

This change entered the tax Code in December, 2017 via Code Section 512(a)(7):

      (7)  Increase in unrelated business taxable income by disallowed fringe.

Unrelated business taxable income of an organization shall be increased by any amount for which a deduction is not allowable under this chapter by reason of section 274 and which is paid or incurred by such organization for any qualified transportation fringe (as defined in section 132(f) ), any parking facility used in connection with qualified parking (as defined in section 132(f)(5)(C) ), or any on-premises athletic facility (as defined in section 132(j)(4)(B) ).

There are three things to note here:

(1)  Congress is treating these disallowed deductions as if they were income to the nonprofit.

(2)  We have to track down the meaning of “qualified parking,” and

(3)  The phrase “deduction is not allowable” has a meaning that is not immediately apparent.

Let’s start with qualified parking, defined as:

… parking provided to an employee on or near the business premises of the employer or on or near a location from which the employee commutes to work …. 

Qualified parking does not include parking provided near the employee’s residence. 

Employer-provided parking includes parking on property an employer owns or leases, parking for which the employer pays, or parking for which an employer reimburses an employee.

So we know that qualified parking is provided near the employer and the employer pays for, reimburses, leases or owns the parking facility.

This makes sense if there is a public garage across the street and the employer pays the garage directly or reimburses an employee who paid the garage. However, how does this work if the employer owns the parking lot?  More specifically, how does this work if the parking lot is available to employees, customers – that is, to everyone and for free?

There is (what appears to be) a Congressional mistake when drafting Code Section 512(a)(7).

In 1994 the IRS published a rule in Notice 94-3, conveniently titled “IRS Explains Rules For Qualified Transportation Fringe Benefits.” Here is Question 10 and its example:

EXAMPLE. Employer Z operates an industrial plant in a rural area in which no commercial parking is available. Z furnishes ample parking for its employees on the business premises, free of charge. The parking provided by Z has a fair market value of $0 because an individual other than an employee ordinarily would not pay to park there.

The answer makes sense. Anyone can park on that lot for free. If an employee parks there, it seems reasonable that the value of the parking would be zero (-0-).

That is not what Code Section 512(a)(7) did:

Unrelated business taxable income of an organization shall be increased by any amount for which a deduction is not allowable ….

There is no reference here to value. To the contrary, the reference is to a deduction – which to an accountant means cost. Parking may be free to the user, but it will cost something to maintain that parking facility. The cost may be a lot or a little, but there is a cost.

The Notice 94-3 rule that tax practitioners had gotten used to was overturned.

Needless to say, there were many questions on what the new rules meant and how to apply them. Consider that a nonprofit is supposed to make quarterly estimated tax payments against any expected unrelated-business-income tax, and guidance was needed sooner rather than later. On December 10, 2018 the IRS published interim guidance (Notice 2018-99) on qualified transportation fringe benefits. 

It started with the easiest example:

A taxable employer pays a garage $12,000 annually so that its employees can park. None of this exceeds the $260 monthly threshold per employee for 2018. The entire $12,000 is non-deductible by the employer.

Introduce any complexity and there are steps to the calculation:   

(1)  Calculate the cost for reserved employee spots.

a.     These costs are disallowed.

(2)  Calculate the primary use of the remaining spots.

a.     If more than 50% is for customers, clients and the general public, the calculation ends.

                                                             i.     Any remaining cost is fully deductible.

b.    If more than 50% is for employees, there is math:

                                                             i.     Calculate the cost for reserved nonemployee parking; these costs are allowed.

                                                           ii.     Calculate the cost for nonreserved employee parking; these costs are disallowed.

Let’s go through an example from the Notice.

An accounting firm leases a parking lot for $10,000 next to its office. The lot has 100 spaces, used by clients and employees. The firm has 60 employees.

(1)  There are no reserved employee parking spaces

a.     We have zero (-0-) from this step.

(2)  The primary use is for employees (60/100).

a.     We have math.

(3)  There are no reserved nonemployee parking spaces (think visitor parking).

a.     We have zero (-0-) from this step.

(4)  One must use a reasonable allocation method. The accounting firm determines that employee use constitutes 60% (60/100) of parking lot use during business days, with no adjustment for evenings, weekends or holidays. The disallowance is $6,000 ($10,000 times 60%).

An accounting firm is a taxable entity, so the $6,000 is not deductible on its return.

What if we were talking about a nonprofit? Then the $6,000 magically “transforms” into unrelated business taxable income. The IRS spots $1,000 exemption, so the taxable amount is $5,000. Apply a 21% tax rate and the tax on the parking lot is $1,050.

What if the employer owns the parking lot? What costs could there be to a parking lot?

The IRS thought of this:

For purposes of this notice, “total parking expenses” include, but are not limited to, repairs, maintenance, utility costs, insurance, property taxes, interest, snow and ice removal, leaf removal, trash removal, cleaning, landscape costs, parking lot attendant expenses, security, and rent or lease payments or a portion of a rent or lease payment (if not broken out separately). A deduction for an allowance for depreciation on a parking structure owned by a taxpayer and used for parking by the taxpayer’s employees is an allowance for the exhaustion, wear and tear, and obsolescence of property, and not a parking expense for purposes of this notice.

At a minimum, I anticipate that one is allocating insurance and taxes.

So a nonprofit can have tax because it provides parking to its employees. You may have heard this referred to as the “church parking lot tax.” Yes, churches are 501(c)(3)s, meaning they are nonprofits just like the March of Dimes. Granted, there are additional tax breaks to being a church, such as not having to file a Form 990. The unrelated business income tax is not filed on a Form 990, however; it is filed on a Form 990-T. They both have “990” in their name, but they are separate tax forms. Who knows how many churches will have to file a Form 990-T for the first time for 2018, even though their board has never filed – or even seen - a Form 990.

How can a church have income from its parking lot?

If it charges for parking, obviously. That however is a low probability event.

Another way would be to have reserved employee parking spaces. Those are allocated cost (which morphs into income) immediately.

A third way is the employee:nonemployee calculation. That calculation would be tricky because of the uneven use of a church over an average week. One would somehow weight the use of the parking lot. Church employees are there Monday through Friday. The congregation is there on Sunday and (maybe) one night during the week. Perhaps employee parking is weighted using a factor of eight (hours) and congregational use is weighted using a factor of 2.5 (hours). Hopefully the result is to get congregational use above 50%. Why?

Remember: if nonemployee use at step (2) is more than 50%, the calculation ends. All the church would have to pay tax on is income from reserved employee parking. If that is below $1,000, there is no tax.

There is an effort to include a repeal of Code Section 512(a)(7) on any extender or other bill that Congress may pass, but that would require Congress to be able to pass a bill – any bill – in the near future.

The Notice also has one of the more unusual “make-up” provisions I have seen. Say that you want to do away reserved employee parking (that is, step (1)) because the tax gets expensive. It is way too late to do anything for 2018, as the guidance came out in December. The Notice allows you to make the change by March 31, 2019 and consider it retroactive to January 1, 2018.

Our church would have no step (1) income as long as it did away with reserved employee parking by March 31, 2019. That would mean taking down the sign saying “Pastor Parking Only,” but that may be the best alternative until Congress can correct this mess.

Oh Henry!

It is a classic tax case.

Let’s travel back to the 1950s.

Let us introduce Robert Lee Henry, both an attorney and a CPA.  He was a tax expert, but he did not restrict his practice solely to tax.

He was also an accomplished competitive horse rider. After he returned from military service, the Army discontinued its horse show team. In response, he organized the United States horse show civilian team.

He met the wealthy and influential, benefiting his practice considerably.

Then he had to give up riding. Heart issues, I believe.

But he was quite interested in continuing to meet the to-do’s and well-connected.

He bought a boat.

He traded it in for a bigger boat.

He bought a flag for the boat. It was red, white and blue and had the numbers “1040.”

People would ask. He would present his background as a tax expert. He was meeting and greeting.

His doctor told him to relax and take time off. Robert Lee called his son, and together they took the boat from New York to Florida. They then decided to spend the winter, as they were already there.

Robert Lee deducted 100% of the boat expenses.

QUESTION: Can Robert Lee deduct the expenses?

NERDY DETAIL: The tax law changed after this case was decided, so the decision today would be easier than it was back in the 1950s. Still, could he deduct the boat expenses in the 1950s?

The key issue was whether the boat expenses were “ordinary and necessary.” That standard is fundamental to tax law and has been around since the beginning. Just because a business activity pays for something does not mean that it is deductible. It has to strain through the “ordinary and necessary” colander.

In truth, this is not a difficult standard in most cases. It can however catch one in an oddball or perhaps (overly) aggressive situation.

Robert Lee was an accomplished rider, and he had developed a book of business because of his equestrian accomplishments. He monetized his equestrian contacts. He now saw an opportunity to meet the same crowd of folk by means of a boat.

Problem: Robert Lee did not use the boat to entertain or transport existing clients or prospective contacts.

And there is the hook. Had he used the boat to entertain, he could more easily show an immediate and proximate relationship between the boat, its expenses and his legal and accounting practice.

He instead had to argue that the boat was a promotional scheme, akin to advertising. It was not as concrete as saying that he schmoozed rich people in the Atlantic on his boat.

He had to run the “ordinary and necessary” gauntlet.

Let’s start.

He continued to have a sizeable equestrian clientele after he left competitive riding.

Good.

He was however unable to provide the Court a single example of a client who came to him because of the boat, at least until years later. Even then, there still wasn’t much in the way of fees.

Bad.

So what, argued Robert Lee. How is this different from buying a full-page ad in an upscale magazine?

Quite a bit, said the Court. You gave up riding for health reasons. There is no question that you derived tremendous personal enjoyment from riding. You have now substituted boating for riding. Enjoyment does not mean that there is no business deduction, but it does mean that the Court may look with a more skeptical eye. It would have been an easier decision for us if you had bought a full-page ad. There is no personal joy in advertising.

As a professional, I have to develop and cultivate many contacts – business, social, personal, political – retorted Robert Lee. One never knows who one will meet, and it takes money to meet money. That is my business reason.

Could not agree with you more, replied the Court. Problem is, that does not make every expenditure deductible. What you are doing is not ordinary. Let’s be frank, Robert Lee, the average attorney/CPA does not keep a yacht.

They would if they could, muttered Robert Lee.

Even if we agreed the expenses were “ordinary,” continued the Court, we have to address whether they are “necessary.” This test is heightened when expenses may have been incurred primarily for personal reasons. You did sail from New York to Florida, by the way. With your son. And you deducted 100% of it.

I am meeting rich people, countered Robert Lee.

Perhaps, answered the Court, but there must be a proximate relationship between the expense and the activity. What you are talking about is remote and incidental. It is difficult to clear the “necessary” hurdle with your “someday I’ll” argument.

Robert Lee shot back: my point should be self-evident to any professional person.

COMMENT: Folks, do not say this when you are trying to persuade a Court.

The Court decided that Robert Lee could not prove either “ordinary” or “necessary.”

The conclusion that the expenditures here involved were primarily related to petitioner’s pleasure and only incidentally related to his business seems inescapable.”

The Court denied his boat deductions.

Our case this time for the home-gamers and riders was Henry v Commissioner.

When Do You Really Start A Business?

It doesn’t sound like much, but it can present a difficult tax issue.

When does a business start?

It helps to have sales. Sales are good. But sometimes you do not have sales.

Then what?

The issue is that tax law allows deductions for expenses incurred in a trade or business. This presumes that the activity has started and is occurring on a regular and continuous basis. Before that point it is more like an intent or hope than an actual business.   

Let’s set-up our story.

Taxpayer was a tax specialist, although I am not sure what that means. His wife was a nurse. For 2013 and 2014 he reported self-employed real estate losses of $15 and $22 thousand, respectively.

Got it. He is tax specialist when is he is not working real estate.

In 2010 he obtained a real estate license. He got together with friends and family and decided to invest in residential real estate. They were going to flip houses. The investor group decided to look in West Sacramento, California, (fortuitously, where he lived). On Saturdays he would leave home, drive 192 miles to Marina, California and pick-up one or more members of the group. They would return to Sacramento to check out houses and then back to Marina. At days-end, our protagonist would finally return home to West Sacramento.

Fortunately, he kept logs for all this driving. He racked up 24,882 miles in 2013 and 25,220 in 2014.

They never bought any property.

He also made no money as a real estate agent.

The IRS audited 2013 and 2014 and bounced the real estate expenses.

Off they went to Tax Court.

His argument was simple: are you kidding me? He was a realtor. He kept mileage logs. He had third parties who could testify that he did what he said he did. What more did the IRS want?

The IRS said that – whatever he was doing – it was not a trade or business.

There was no evidence that he was regularly and continuously working as a real estate agent for those years. You know, no income and all. 

So, what did the IRS think he doing with the family-and-friends consortium?

He was trying to start a business, a business flipping houses. But he and they never flipped a house, Heck, they never even bought a house. He was as much a house flipper as I am a retired ex-NFL player.

That put him in a tough spot.

Here is the Tax Court:

At best, petitioner husband’s activity in 2013 and 2014 was in the exploratory or formative stages of forming a business of flipping houses. Carrying on a trade or business requires more than initial research into a potential business opportunity; it requires that the business have actually commenced.

Section 162(a) does not permit current deductions for startup or preopening expenses incurred by a taxpayer before beginning business operations.”

He lost.

The IRS now wanted penalties – “substantial underpayment” penalties. This is a “super” penalty, for when the regular penalty is just not enough.

Remember that taxpayer listed his occupation as “tax specialist.”

Bad idea when you are trying to get penalties abated.

Here is the Court:

Petitioner husband considered his occupation to be a “tax specialist” and operated a tax preparation services business as a sole proprietorship. However, in preparing their tax returns petitioners failed to exercise due care or to do what a reasonable person would do under the circumstances to determine whether petitioner husband was in a trade or business ….”

Ouch.

The case is Samadi v Commissioner, for the home gamers.

Saying Goodbye To Employee Business Expenses

Let’s talk about miscellaneous itemized deductions - likely for the last time.

These are the deductions at the bottom of the form when you itemize, and you probably itemize if you own a house and have a mortgage. Common miscellaneous deductions include investment management fees (if someone, such as Simply Money, manages your savings) and employee business expenses.

These are the “bad” expenses that are deductible only to the extent they exceed 2% of your income (AGI), because … well, because the government wants more of your money.

I am reading a case concerning a bodyguard and his employee business expenses.

His name is Rick Colbert and he retired after 30 years from the Long Beach, California Police Department. He gigged-up with Screen International Security Service Ltd (SISS) in Beverly Hills. They assigned him celebrities. He chauffeured them, deflected paparazzi, installed and monitored security devices, patrolled their estates, performed access point control and responded to distress calls.

SISS had a reimbursement policy. It did not cover everything, but it did cover a lot. Colbert did not seek any reimbursement.

He filed his 2013 tax return and reported SISS income of $25,546.

He then deducted employee business expenses of $23,965.

COMMENT: One can tell he is not in it for the money.

Those numbers are out-of-whack, and the IRS audited him. Like the IRS we know and love, they bounced all of his employee business expenses, arguing that he had not substantiated anything.

On to Tax Court they went.

The Court went through the list of expenses:

(1) $211,154 for a pistol and target practice.

Looks legit, said the Court.

(2) $86 for earbuds

To avoid annoying celebrities.

The Court grinned. OK.

(3) $1,711 for clothing and dry cleaning

Nope said the Court.

We have talked about this before. If you can wear the clothing about town and day-to-day, there is no deduction. It is just another personal expense, unless our protagonist wanted to dress up like “Macho Man" Randy Savage.

(4) $1,609 for a gym membership, weight loss pills and other stuff.

Uhh, no, said the Court, as these are the very definition of “personal, living, or family expenses.”

(5) Office in Home

This would have been nice, be he did not use space “exclusively” for the office, which is a requirement. This would hurt a send time when the Court got to his …

(6) iPad and printer

Computers are like cars when it comes to a tax deduction: you have to keep records to document business use. The reason you never hear about this requirement is because of a significant exception – if you keep the computer in an office you can skip the records requirement.

When Colbert lost his office-in-home, he picked-up a record-keeping requirement. He lost a deduction for his iPad, printer and supplies.

(7) $5,003 for his cellphone

It did not help that his internet and television were buried in the bill.

The Court disallowed his cellphone, which amazes me. Seems to me he could have gone through his bills and highlighted what was business-related.

He won some (primarily his mileage) but lost most.

And his case is now among the last of its kind.

Why?

The new tax bill does away with employee business expenses, beginning in 2018. There is NO DEDUCTION this year.

If you have significant employee business expenses, you really, really need to arrange a reimbursement plan with your employer. Your employer can deduct them, even though you cannot. Why the difference?

Because, to your employer, they are just “business expenses.” 

Your Child Wins A Beauty Pageant

We are in a mini “tax season” here at Galactic Command, with September 15 being the deadline for business returns. Next month is the extended due date for the individual returns.

I wanted to find something light-hearted to discuss. Call it a salve to my sanity.

Let’s talk about your kid. Yes, the one who will soon be discovered on America’s Got Talent. It could happen. He could be the next Jonathan, or she the next Charlotte.

COMMENT: Jonathan and Charlotte were discovered on Britain’s Got Talent. It is worth watching their first appearance, if only for Simon’s reaction.

Say your kid wins prize money.

This being a tax blog: who pays tax on the money – the kid or you? After all, the kid is your dependent. He/she is nowhere near emancipated.

Here is a Code section one could spend a career in practice and not see:

 § 73 Services of child.

(a)  Treatment of amounts received.

Amounts received in respect of the services of a child shall be included in his gross income and not in the gross income of the parent, even though such amounts are not received by the child.

(b)  Treatment of expenditures.

All expenditures by the parent or the child attributable to amounts which are includible in the gross income of the child (and not of the parent) solely by reason of subsection (a) shall be treated as paid or incurred by the child.

The daughter of our protagonists (Lopez) started competing in beauty pageants at age nine. There were expenses involved with this, such as travel, outfits, cosmetics and so on. In 2011 and 2012 she won a couple of dollars, approximately $3,200 to pin it down.

Which was nowhere near the expenses of over $37 grand across the two years.

They used an Enrolled Agent with over 40-years’ experience to prepare their return.

COMMENT: An E.A. is an IRS-administered exam on tax proficiency. While perhaps not as well-known as the CPA, it is a substantial credential. There are many CPAs who practice outside tax, for example, but all E.A.’s practice tax.

The E.A. decided to put the daughter’s income on the parent’s return. He arrived at that conclusion by reviewing state child labor laws. He gave it a lot of thought, but he missed Code Section 73.

As I said, it is rare that one would blow dust off that section.

He prepared the parent’s return, including the daughter’s prize money.

That part was only $3 grand or so. The sweet part was the $37 grand in expenses. The parents took a BIG tax loss.

And the IRS tagged the return.

The Lopez’s fought the IRS. There was also a second IRS adjustment, so I presume they decided that fighting one was the same effort as fighting both.

The kid’s income and expenses, however, was a clear loser.  

The IRS adjusted their income by over $30 grand, so they came in with a souped-up penalty – the “accuracy related” penalty. That bad boy parachutes in at 20%. The IRS likes to toss that one out like hot-sauce packets at Gold Star.

Remember the E.A.?

The Court pointed out that the Lopez’s hired a tax professional. He researched the issue. Granted, he arrived at the wrong answer, but that was not the Lopez’s fault. They hired a professional, and they reasonably relied upon the advice of the professional.

The Court dismissed the penalties.

Small consolation, but something.

Out On A Limb

I met a new client recently.

He made me laugh.

Not to his face, though. That would be rude.

He was running me through a series of HSA/single member LLC/loan transactions.  And then the inevitable: will this get me in trouble with the IRS?

This is not as easy a question to answer as it used to be.

The IRS is experiencing a phenomenal brain drain, as its baby boomers are retiring left and right. They are replacing 25-or-more-years of tax experience with … well, let’s just say that they are not comparable. Add in the Congressional budget restrictions. Continue with the new-and-novel political presumption that every known societal problem can be addressed through the tax Code, and the IRS is having issues.

Will he get in trouble? Well, if he is unfortunate enough to be audited, he likely will face an examiner with fewer years of experience than the shoes I am wearing. His or her group manager is unlikely to be much better. This raises our risk profile, as they probably will not (a) understand and/or (b) care for our “novel” tax ideas. Now we go to Appeals. I have to draft the written appeal, with cites and arguments and precedents. It can be a hassle, and I won’t be cheap.

How much money is he saving by climbing-out on a far limb of the tax tree?

My point exactly. I am not a fan of taking nine-standard-deviations-from-the-mean positions on a tax return just to save $50. Folks, the Empire can strike back. I have seen it hit and hit hard.

There was a dentist in 2002 and 2003 that wanted to climb one of those high and far branches. There were several issues in the case, but the one that interests us is the vehicle deduction. It was a husband and wife team, with the husband being a dentist. She might have some argument for business use of the vehicle if she was the office manager, as perhaps she was going to the bank or post office, for example. Still, that is unlikely to amount to much. His argument was much more tentative. Was he visiting patients? Was he running to/from the dental lab(s)? What exactly would a dentist do that would rack up any significant business mileage?

Let’s climb up that tax tree. Let’s edge out on that limb. Let’s gaze into the verdant valley below.

Their argument?

Here is the first: He had applied veneers to his wife’s teeth, so whenever she went somewhere she was …

“… a walking, talking billboard for [the] dental office.”

Alrighty then. There is a journalism career in there for that depth of intellect.

How about a second?

Additionally, each vehicle had a license plate holder that displayed the name of the dental practice.”

Petitioners contend that even when the vehicles were being used for personal reasons they provided a valuable advertising service to the practice.”

These people are like giving a fish a bath.

You can anticipate how this turned out: the Court bounced the entire vehicle deduction, even the part that may have been legitimate.

Was it a novel argument? Yes .... It wasn’t a good one, though.

The case for the home players is Willock v Commissioner.

How To Lose All Of Your Auto Deduction

I am not a fan of dumb.

And I am reading big dumb.

The IRS wanted over $22 thousand in taxes and $4,000 in penalties. There were several issues, but there was one that racked up the money.

What do you need if you want to claim auto expenses on your tax return?

Answer: some kind of record, like a log.

There is a reason for this. It is not random, chaotic or unfathomable.

The reason has two parts:

(1)  There was a very famous case decided in the 1930s concerning George Cohan. George was a playwright, a composer, a singer, actor, dancer and producer. He was very famous. He was also a terrible record keeper. Given his day job, he spent a ton of money schmoozing people. He deducted some of those expenses on his tax return, as he had to wine and dine to maintain his recognition, connections and earning power. Problem was: he kept lousy records. One had to – essentially – take his word for the expenses.

The Court, knowing who he was, thought it believable that he had incurred significant entertainment expenses. The Court simply estimated what they were and allowed him a deduction.

Ever since, that guesstimate has been referred to in taxation as the “Cohan rule.”

Problem was: everything can be abused. What started out as common sense and mitigation for George Cohan became a loophole for many others.

(2)  Congress got a bit miffed about this, especially when it came to travel, transportation and entertainment expenses. These expenses can be “soft” to begin with, and the Cohan rule made them gelatinous. Congress eventually said “enough” and passed Code Section 274(d), which overrides the Cohan rule for this category of expenses.

BTW, “transportation” is just a fancy tax-word for mileage.

The tax-tao now is: no records = no mileage deduction. Forget any Cohan rule.

Now, you do not need to record every jot and tittle as soon as you get in the car. Records can include your Outlook calendar, for example. You could extend the appointment by mileage from MapQuest and (probably) have the IRS consider it adequate. The point is that you created some record, at or near the time you racked up the mileage, and that record can be reasonably translated into support for your deduction.

Enter Gary Roy.

He was a consultant in Los Angeles. He worked out of his home and drove all over the place for business. He must have made a couple of bucks, as he purchased an Aston Martin Vantage.

This is not a car you see every day. Chances are the last time you saw an Aston Martin was in a James Bond movie.

You know he deducted that car on his tax return.

There are multiple issues in the case, but the one we want to talk about is his car. Roy appeared before the Court and straight-facedly claimed that he kept a mileage record for the Aston. He presented a sheet of paper showing mileage at the beginning of the year and mileage at the end of the year. He helpfully added the description “business use” so the Court would know what they were looking at.

As far as he was concerned, this was all the record-keeping he needed, as the car was 100% business use.

I want to be sympathetic, I really do. I suppose it is possible that he did not understand the rules, but I read in the decision that he used a tax preparer. 

COMMENT: To whom he paid $250. Given that there were complexities in his tax return – the business and a gazillion-dollar car, for goodness’ sake – he really, really should have upgraded on his tax preparer selection.

Roy had no chance. That stretch of tax highway has a million miles on it, and he missed the pavement completely.

Without the Cohan rule, the Court was not going to spot him anything. He just got a big zero. That is what Section 274(d) says. 

And is what Congress wanted back when.

Worst case scenario for Mr. Roy.