Taxes are bizarre-IRS, Courts, citizens

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Registered: 01-06-2000
Taxes are bizarre-IRS, Courts, citizens
2
Fri, 11-21-2003 - 11:26am
One of the self-study courses I chose was JK Lasser's Year-Round Tax Strategies for 2003 (interesting enough for a dry subject). The authors cited a number of IRS positions, Tax Court actions, and what taxpayers have tried to get away with that I thought were worth sharing. No wonder it's impossible for an average person to get their arms around tax law.


Blood money. The IRS does not consider the giving of blood to be a donation for tax purposes. Donors throughout the country are being taxed on the money they earn for donating their blood. Regular donors are also being subjected to the 15.3% self-employment tax.


Funny business. In a 1997 decision the Tax Court agreed with the IRS that a mathematics professor who served as advisor to a comic book club could not deduct the cost of 16,000 comics that he purchased over a 3-year period.


Palmists. In 1990 the Tax Court ruled that payments to a fortune teller under New york law gave rise to a tax deduction for theft loss.


What party? It's publicity. If you entertain groups of customers or clients, it is best to plan a formal agenda for meetings, even if they're limited. The Tax Court created an exception, though: throw a party so big that the "clear purpose is to obtain publicity as opposed to maintaining goodwill." A federal district court permitted a business deduction for the annual party given by a developer whose guests included all real estate agents who sold at least two of his homes during the previous year. The party for 1989 featured cocktails, a seated dinner, and entertainment by Barbara Mandrell at at cost of $347,000.


Maybe the buyers should get the deduction. In 1992, the Tax Court ruled that a manager of musical groups could deduct the nearly $140,000 spent in unsuccessfully promoting his wife's singing career. The Court noted "suffering has never been a prerequisite to deductibility." (The Courts didn't say who suffered: the couple or the people who bought the music.)


Better check the nets for holes - big holes. In 1996 the Tax Court allowed a tuna boat operator to claim substantial losses - he'd caught only one fish in the year in question and lost $21,000.


There's no gold in them thar trash heaps. In the same year, The Court allowed a trash trucker to deduct more than $200,000 in losses arising from searching for gold. He found but a few coins and eventually gave up.


Cat in the bag. In 2001, the Tax Court allowed a business deduction for cat food. The taxpayer was a junkyard seeking to attract wild cats to keep out snakes and rats - an example of how the Court views each case on it's own.


And the nominees for best songwriter are.... Country music star Conway Twitty started up a new burger chain (Twitty Burger), and pursuaded a number of associates to invest. When the chain failed, Twitty repaid each investor what they put in plus an interest factor - something he didn't have to do. He showed the payments as a business deduction. The IRS disallowed the deduction, but the Tax Court sided with Twitty, noting that he fairly repaid investors to protect his reputation in his "regular" business of country music. The exact words of the Court:


Twitty burger went belly up

But Conway remained true:

He repaid his investors, one and all

It was the moral thing to do.


His fans would not have liked it

It could have hurt his fame

Had any investors sued him

Like Merle Haggord or Sonny James.


When it was time to file taxes

Conway thought what he would do

Was deduct those payments as a business expense

Under section one-sixty-two.


In order to allow these deductions,

Goes the argument of the Commissioner,

The payments must be ordinary and necessary

To a business of the petitioner.


Had Conway not repaid the investors

His career would have been under a cloud,

Under the unique facts of the case,

Held: The deductions are allowed.


Business and pleasure. An exotic dancer with the stage name Chesty Love had breast implants done in 1988 and 1991, and she quadrupled her income. She claimed a depreciation deduction on the implants, which the IRS disallowed. Concluding that the costs were incurred solely in futherance of business and that she derived no personal benefit from what she described as a necessary "stage prop," the Tax Court sided with Ms. Love.


Do as they say, not as they do. In 1994, the GAO could not audit the IRS which was unable to account for $2.1 billion in expenses.... In 1996, a Washington DC accountant called the IRS about an estate tax issue and was asked by the IRS representative whether he was the decedent.... In 1999, the IRS sent notices to hundreds of taxpayers stating that their May 1999 tax deposits were being applied to the January 31, 1900 tax period.... A 2001 report of the Treasury Inspector General for Tax Administration found that 73% of walk-ins to local IRS offices received incorrect or insufficient answers; the IRS put the figure at 50%.... In 2002, the Inspector General was asked to investigage the loss of 6600 computers and several firearms by the IRS, while a GAO report cited inadequate controls over property and equipment....


File Drawer #13. In 1998 the IRS conducted a customer satisfaction survey of 150 taxpayers whose property the IRS had seized. Only 9 questionnaires were returned.


~ ~ ~ ~ ~


Source: De Jong, David S. Esq, CPA; and Jakabcin, Ann Gray, Esq.: J.K. Lasser's year-Round Tax Strategies, 2003. c. 2003. Various pages.





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Avatar for imthebigsister
iVillage Member
Registered: 03-26-2003
Fri, 11-21-2003 - 11:34am
"File Drawer #13. In 1998 the IRS conducted a customer satisfaction survey of 150 taxpayers whose property the IRS had seized. Only 9 questionnaires were returned."

And can you guess what the other 141 taxpayers muttered as they shredded the survey???

Enlightening. No wonder you're buried in books for months at a time.....

Donna

iVillage Member
Registered: 03-26-2003
Fri, 11-21-2003 - 12:19pm
Wild and whacky stuff!

Rhonda


Time invested in improving ourselves cuts down on time disapproving of others.

       ~~Rhonda~~


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