Noah Schmerling and Susana Schmerling v. Comm., TCS 2023-14
This post is part of our series on recent important tax cases that may be of interest to accounting, tax, and finance professionals. For more like this, see our Federal Tax Update and California Federal Tax Update, which offer a comprehensive analysis of the year’s most pivotal tax developments.
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 salesman. His 1099-MISC income was reportable as Other Income related to his employment. His expenses, to the extent deductible, were allowed as unreimbursed employee business expenses or as expenses incurred for the production of income. Regardless of how the expenses were categorized, they were miscellaneous itemized deductions.