Case — Deductibility of Investor Expenses

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TL Case Summ

THE QUESTION

Can an investor deduct expenses related to a training and instruction course?

THE DISPUTE

Taxpayer Says: The course was necessary to improve trading skills and is deductible as ordinary and necessary expenses paid for the production or collection of income.

Internal Revenue Service Says: The course is a convention, seminar, or similar meeting, and is not deductible.

THE LAW

From Internal Revenue Code Section 212(1): Allows as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income.

From Internal Revenue Code Section 274(h)(7): Provides that no deduction shall be allowed under section 212 for expenses allocable to a convention, seminar, or similar meeting.

From Senate Report 99-313, at 75 (1986), 1986-3 C.B. (Vol. 3) 1, 75: The disallowance of expenses under Section 274(h)(7) is intended to extend to registration fees, travel and transportation costs, and meal and lodging expenses, among other costs attributable to attending a convention, seminar, or similar meeting.

THE CAUSE OF THE DISPUTE

You can claim certain expenses related to investment activities, such as investment advice, as a miscellaneous itemized deduction. However, unless you are in the business of trading stocks, expenses you incur while attending conventions, seminars and meetings are typically nondeductible.

In this case, the taxpayer, a long-time investor, spent weekdays day trading stocks. He took an intensive five day course to increase his knowledge and his income from the trading. While admitting he is not in the business of trading, because the course was educational, had no recreational aspect, and was directly related to the production of income from his day trading, he believes it is not a convention or seminar as defined under the tax code.

The IRS says the course is a convention or seminar, and is not deductible.

WHAT WOULD YOU DECIDE?

Make your selection, then see “The Court’s Decision” below for a full explanation

For the or for the

THE COURT’S DECISION

Download (PDF, 10KB)

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HL Carpenter, an experienced investor and a CPA, specializes in reader friendly articles on taxes and investing for individuals and small businesses, and publishes two newsletters: Taxing Lessons and Top Drawer Ink. Visit TaxingLessons.com and HLCarpenter.com.

This information should not be considered legal, investment or tax advice. Taxing Lessons and Top Drawer Ink Corp. do not provide legal, investment or tax advice. Always consult your legal, investment and/or tax advisor regarding your personal situation.

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Sorry, wrong answer :(
Right answer!
For the IRS. A seminar is a meeting for giving and discussing information. Other factors, including no recreational activities and the one-on-one nature of the course, are not determinative. The expense is not deductible.
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