Taxing Lessons Case Summaries

Case — Classification as Statutory Employee

THE QUESTION Is an educational consultant working for a school district considered a statutory employee who is not required to pay self-employment tax? THE DISPUTE Taxpayer Says: Services rendered to the school district meet the requirements necessary to qualify under the statutory definition of “home worker”, and self-employment tax is not owed. Internal Revenue Service Says: Self-employment tax is owed.…

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Taxing Lessons Case Summaries

Case — Discharge of Indebtedness Income – Insolvency Exclusion

THE QUESTION Does a taxpayer have to be insolvent both immediately before and immediately after having debt discharged in order to exclude the income from being taxed? THE DISPUTE Taxpayer Says: At the time mortgage debt was forgiven, taxpayer’s liabilities exceeded assets, so cancellation of indebtedness income is excludable from income. Internal Revenue Service Says: The insolvency exception does not apply…

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Taxing Lessons Case Summaries

Case — Gambling Activity: Hobby or Trade/Business?

THE QUESTION Did taxpayer engage in gambling activities with the intention of making a profit? THE DISPUTE Taxpayer Says:  Losses were incurred as a gambling professional engaged in the business of playing slot machines and are deductible in full against winnings. Internal Revenue Service Says: Gambling losses were not incurred in the course of a trade or business, and are deductible only…

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Taxing Lessons Case Summaries

Case — Location of Tax Home and Deductibility of Travel Expenses

THE QUESTION Can expenses incurred while away from home be deducted when an employee accepts a change in job location without knowing how long the job at that location will last or where the next location will be? THE DISPUTE Taxpayer Says:  Vehicle, meals and transportation expenses are deductible because they were incurred while away from home in the pursuit of…

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Taxing Lessons Case Summaries

Case — Charitable Contribution Deduction

THE QUESTION Can an attorney take a tax deduction for case materials donated to a charity? THE DISPUTE Taxpayer Says:  Case files relating to the Oklahoma City bombing that were donated to the University of Texas are eligible for a charitable contribution deduction. Internal Revenue Service Says:  The case files did not belong to the taxpayer (an attorney), making the gift invalid and the deduction not…

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Taxing Lessons Case Summaries

Case — Deduction of Expenses Related to Illegal Activity

THE QUESTION When a business is engaged in two separate activities, do all ordinary and necessary business expenses of both become nondeductible because one activity involves an illegal activity (trafficking in a controlled substance)? THE DISPUTE Taxpayer Says:  All expenses related to separate activities of providing caregiving and medical marijuana (under the California Compassionate Use Act of 1996) are fully deductible.…

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Taxing Lessons Case Summaries

Case — Innocent Spouse Relief

THE QUESTION At what point does a spouse’s knowledge of embezzlement income make innocent spouse relief unavailable? THE DISPUTE Taxpayer Says:  Husband should not have to pay tax on wife’s embezzlement income because he did not know of it at the time the original joint tax return was filed. Internal Revenue Service Says: Innocent spouse relief does not apply because husband knew…

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