Western CPE Blog
Breaking tax and accounting news and analysis from the experts at Western CPE.
James Avery v. Comm., TCM 2023-18
Race Car Driving is Not Advertising for Attorney (James Avery v. Comm., TCM 2023-18) Avery was an attorney who got involved in showing collector cars as a way to meet potential clients. He later moved on to car racing by attending a racing school, purchasing and rebuilding a 2000 Dodge Viper.Avery claimed racing-related expenses of $355,000 as advertising for his law practice over six years (all in even dollar amounts – $50,000 for both 2008 and 2009; $60,000 for both 2010 and 2011; $65,000 for 2012; and $70,000 for 2013). Avery’s name appeared on a small area above the driver’s …
Noah Schmerling and Susana Schmerling v. Comm., TCS 2023-14
Car Salesman’s “Other Income” was Not Separate Trade or Business (Noah Schmerling and Susana Schmerling v. Comm., TCS 2023-14) Noah Schmerling was a car salesman who received W-2 wage compensation from his BMW dealership employer. He also received income on Forms 1099-MISC from BMW for participation in their Performance Bonus Program and from Devex for sales of extended warranty service contracts. Noah reported the 1099-MISC amounts as income on Schedule C and claimed expenses related to the income. The Court determined that the 1099-MISC amounts received did not constitute a business separate and apart from his employment as a car …
Thomas Laronn Mitchell v. Comm., TCS 2023-9
No Records Plus Conflicting Records Plus Self-Serving Testimony Equals No Deductions (Thomas Laronn Mitchell v. Comm., TCS 2023-9) The Tax Court just could not bring itself to allow any deductions in this case. You will probably agree. Mr. Mitchell attempted to substantiate $22,499 in car and truck expenses with a mileage log showing 81,186 business miles in 2018. State inspection records covering a 12-month period that included most of 2018 revealed a mileage difference of only 21,816 miles. The mileage log also had some date issues: while driving in Dallas, TX he submitted a hotel receipt for a stay in …
Russell E. Barrios v. Comm., TCM 2023-32
Non-Filer Cannot Rely on Profit and Loss Statement to Substantiate Expenses (Russell E. Barrios v. Comm., TCM 2023-32) Mr. Barrios failed to file his 2011 tax return. The IRS prepared a substitute for return under §6020(b) and a notice of deficiency was issues. Barrios presented a CPA-prepared Form 1040 and a profit and loss statement at trial in an effort to substantiate more expenses than the IRS was allowing. He did not provide any source documents and relied upon testimony from his CPA, who claimed to have verified the amount on the profit and loss statement. The CPA testified that …
Mohamed Elbasha v. Comm., TCM 2022-001
Home Office Denied for ER Doctor (Mohamed Elbasha v. Comm., TCM 2022-001) Mohamed Elbasha worked as a contract emergency room doctor at Murray Medical Center in Chatsworth, Georgia. Dr. Elbasha testified that he had no office at Murray Medical Center and so exclusively used one room in, or 50% of, his condominium to do paperwork related to his emergency room duties.Dr. Elbasha deducted $18,000 for a Schedule C rent/lease—other business property expense on his 2008 Form 1040. This deduction related to the use of his condominium as a home office. He provided a chart listing the hours each month he …
Terence and Janet Keating v. Comm., TCM 2024-2
Insurance Premiums Must be for Insurance (Terence and Janet Keating v. Comm., TCM 2024-2) Terence and Janet Keating were shareholders of Risk Management Strategies, Inc. (RMS), an S corporation whose business was being an employer for its clients, which were primarily banks administering special needs trusts. RMS assumed the employer liability resulting from the employment of caregivers who worked for special needs trusts, handled payroll, and generally carried out the responsibilities of being an employer to caregivers and other employees that would have otherwise fallen on its clients. For each year at issue, RMS reported incurring approximately $1.2 million of …
Sunil S. Patel and Laurie McAnally- Patel v. Comm., TCM 2024-34
Circular Flow of Funds Flushes Claim of Insurance Expense (Sunil S. Patel and Laurie McAnally- Patel v. Comm., TCM 2024-34) The Patels owned an eye surgery practice, Ophthalmology Specialists of Texas (OST) and two companies used to conduct clinical research trials on experimental drugs for retina diseases: Integrated Clinical Research, LLC (ICR) and Strategic Clinical Research Group, LLC (SCR). The Patels also formed West Texas Hospital with other doctors, in part, so Dr. Patel (Sunil) would not have to wait for operating rooms for his patients. After suffering substantial losses related to a patient death at the hospital, the Patels …
Patricia Chappell v. Comm., TCS 2024-2
GPS Tracker Doesn’t Work Alone to Get Deduction for Tax Preparer (Patricia Chappell v. Comm., TCS 2024-2) Patrica Chappell used MileIQ to track location from March 23 and Dec. 15, 2015. From the app, she entered whether trips were business or personal. MileIQ summarized Ms. Chappell’s tracking information and provided a log that could be used to help substantiate her business miles driven during the year. Ms. Chappell’s driver’s license was suspended for about six months in the middle of 2015. During that time, she used a driver. In a close examination of her records, there were inconsistencies in dates …
Maribel Gonzalez v. Comm., TCS 2022-13
Clothing Business Schedule C Expenses Including Travel & Auto Allowed (Maribel Gonzalez v. Comm., TCS 2022-13) Maribel Gonzalez started a clothing design business in Los Angeles as a wholesaler, designing children’s clothing, and hired a patternmaker in Los Angeles. Ms. Gonzales lived and worked in Palo Alto. She drove from Palo Alto to Los Angeles approximately every other weekend to review the patternmaker’s work and deliver supplies. While her records were limited, she did have an excel spreadsheet travel log, indicating the purpose of the travel and estimating the costs of the travel. She also had car maintenance receipts substantiating …
Joseph William Sherman v. Comm., TCM 2023-63
ER Doctor’s Film and Music Activity Not Engaged in for Profit (Joseph William Sherman v. Comm., TCM 2023-63) “Doctor, doctor, please. Oh, the mess I’m in.” UFO got it right in this case. Joseph Sherman was an emergency room doctor with a side hustle “film production company that combines music and film.” In addition to working about 120 hours per month as a physician, Dr. Sherman “guesstimated” that he also spent 200 to 300 hours per month on his activity – Songswell. For 2015, Songswell generated no revenue and reported $104,758 in expenses. He was unable to produce anything other …
Leslyn Jo Carson & Craig Carson, Docket 23086-21S (March 22, 2023)
IRS Misinterpreted Activity – A Farm is Not a Rodeo (Leslyn Jo Carson & Craig Carson, Docket 23086-21S (March 22, 2023)) The Carsons deducted losses for several years on a Schedule F “livestock” activity. In 2017, Schedule F reported gross income of $2,741 in rodeo competition winnings and total expenses of $128,990. In 2018 Schedule F reported gross income of $8,063 ($1,867 compensation for the Carsons’ children’s labor and $6,196 in rodeo competition winnings) and total expenses of $133,929. The IRS proposed to treat the Schedule F activity as not engaged in for profit.Leslyn Jo Carson’s mother owned a ranch …
Robert Dean Mazotti and Debra Lea Jones-Mazotti v. Comm., TCM 2024-75
One and Two-Page Books do not an Author Make (Robert Dean Mazotti and Debra Lea Jones-Mazotti v. Comm., TCM 2024-75) Debra Jones-Mazotti claimed to be a for-profit writer-researcher. The IRS classified her activity as not for profit in tax years 2018, 2019, and 2020. She had been claiming expenses as a writer-researcher for three decades before recording a profitable year in 2022. She traveled for her writing to California, Florida, and Hawaii. Her husband or daughter generally traveled with her. Trips to California and Disney World (Florida) were purportedly research on a family trivia game she wanted to write. On …
Gary M. Schwarz & Marlee Schwarz v. Comm., TCM 2024-55
Millions in Revenue plus Millions in Losses Equals a Hobby (Gary M. Schwarz & Marlee Schwarz v. Comm., TCM 2024-55) Gary and Marlee Schwarz had been involved in real estate activities in South Texas, primarily focusing on ranch land development. Gary developed a “love of deer” growing up when visiting his grandparents’ ranch observing deer and other wildlife. He studied deer and ranch management, learning that deer in Canada and the Midwest were more plentiful and larger than in South Texas. He developed a system that would mimic the feeding and crop growing techniques of those areas to produce deer …
Michael Johnson, et al., 160 TC No. 2 (Jan. 25, 2023)
EECB Deduction Allowed (Michael Johnson, et al., 160 TC No. 2 (Jan. 25, 2023)) Michael Johnston, et al, in this consolidated case are shareholders in an S corporation, Edwards Engineering (Edwards). Edwards was hired by a Veterans Administration hospital to supply and install components of the federal building’s HVAC system. Edwards analyzed existing technical programming specifications, modified them as necessary, and then programmed the modified specifications into new, installed components. Upon Edwards’ request, the VA building’s chief maintenance officer signed a letter that agreed, pursuant to §179D(d)(4), to allocate to Edwards the full amount of the §179D deduction to which …
Donald E. Swanson v. Comm., TCM 2023-81
Fishing Charter Failed to Land Profit Motive Determination (Donald E. Swanson v. Comm., TCM 2023-81) Donald Swanson was an avid fisherman, favoring Alaska for more than 30 years. After retiring in 2010 from two onshore jobs (loading cargo and driving a city bus), he established Happy Jack Charters and acquired a halibut boat. For the years in this case (2015 and 2016), the IRS asserted that the charter fishing activity was not engaged in for profit.From 2010 through 2016 he never showed a profit, racking more than $130,000 in losses. He relied upon Square to track his income, did not …
Yes, IRS Direct File Still Exists — For Now
The IRS’s Direct File program is still here, despite some confusion on social media.On Monday, Elon Musk posted on X that he had “deleted” 18F, a digital services agency within the General Services Administration. 18F helps other government agencies build, buy, and share technology resources—including the IRS Direct File Program.While Musk’s digital declaration has invited speculation about the future of Direct File, the IRS is currently accepting returns through Direct File. As of Thursday, the 18F website is still live, but its X account has been deleted.During his January confirmation hearing, Treasury Secretary Scott Bessent was clear about his intentions …
IRS & State of California Fires Tax Relief – California Los Angeles County Fire & Wind Disaster January 2025
By: Federal Notices: CA-2025-01 & IR-2025-10IRS notices CA-2025-01 and IR-2025-10, issued January 10th, announced California residents of Los Angeles County, identified by FEMA as a “federally declared disaster area” due to the recent fires and wind conditions now have until October 15, 2025, to file and pay various federal individual and business tax returns and payments.This tax relief postpones until October 15, 2025, several tax filing and payment deadlines beginning on January 7, 2025, and eliminates any penalties or interest for payments made by the new deadline, October 15, 2025. See the exception below for payroll tax forms W-2 and W-3 …
Federal Disaster Relief Act Makes Big Changes to Casualty Loss Deduction: Key Provisions for Tax Practitioners
By: The Federal Disaster Relief Act of 2023 (enacted December 12, 2024) introduces significant modifications to disaster-related tax provisions that practitioners should consider when advising clients affected by qualified disasters. This analysis covers key provisions and implementation considerations for tax professionals. Effective Dates and Qualification Criteria The Act’s general provisions apply to presidentially declared disasters from January 1, 2020, through February 11, 2025 (60 days post-enactment). However, practitioners should note the special carve-out for California wildfire disasters, which extends retroactively to December 31, 2014. Modified Casualty Loss Treatment The Act fundamentally alters the traditional casualty loss framework for qualified disasters. Key …
BOI Reporting Remains Voluntary: A Tale of Two Injunctions
FinCEN announced Friday morning that beneficial ownership information (BOI) reporting requirements remain voluntary, despite Thursday’s Supreme Court decision that might have suggested otherwise. The situation stems from two separate nationwide injunctions: while the Supreme Court lifted one (Texas Top Cop Shop v. Garland), another (Samantha Smith and Robert Means v. U.S. Department of the Treasury) remains in effect, creating an interesting regulatory scenario where compliance is optional but increasingly inevitable. Implementation Timeline for the Corporate Transparency Act Congress passed the Corporate Transparency Act (CTA) in 2021 as part of an anti-money-laundering initiative. FinCEN initially set a January 1, 2025 deadline …
2025 LA Firestorm: Governor Announces Property Tax Relief
Tax professionals serving Los Angeles County have two significant relief measures to discuss with clients affected by the recent firestorms, following Governor Newsom’s January 16, 2025 executive order.Property owners in designated areas now have automatic extensions for property tax payments. Property taxes due April 10, 2025 and December 10, 2025, are now due April 10, 2026.For clients who had their property damaged or destroyed, the disaster reassessment program can provide immediate reductions to property tax assessments. While the postponement of payments to April 10, 2026 is good, it’s even better if the amounts due in 2026 are reduced. Automatic Extension …