{"id":2709,"date":"2018-08-01T11:16:57","date_gmt":"2018-08-01T15:16:57","guid":{"rendered":"http:\/\/keysolutions.us\/blog\/?p=2709"},"modified":"2018-08-01T11:16:57","modified_gmt":"2018-08-01T15:16:57","slug":"home-office-deduction-denied","status":"publish","type":"post","link":"https:\/\/keysolutions.us\/blog\/home-office-deduction-denied\/","title":{"rendered":"HOME OFFICE DEDUCTION DENIED"},"content":{"rendered":"

HOME OFFICE DEDUCTION DENIED<\/strong><\/span><\/h1>\n

 <\/p>\n

Tax Court Agrees with IRS – <\/strong><\/span><\/h2>\n

\u00a0Home Office Deduction for Storage Denied<\/strong><\/span><\/h2>\n

\u00a0<\/strong><\/p>\n

IRS Sees Through the Smog & <\/strong><\/span><\/h2>\n

Taxpayer Strikes Out<\/strong><\/span><\/h2>\n

\u00a0<\/strong>Mohammed Najafpir (US Tax Court, Dkt. No. 9660-16, TC Memo 2018-103) owned a smog prevention business that he operated as a sole proprietorship. The IRS found that he had unreported gross receipts from his business. Since the taxpayer failed to maintain adequate records to establish his gross revenues, the IRS used the bank analysis method where it reconstructs the gross receipts from bank statements.<\/p>\n

Strike one!<\/strong> The taxpayer argued that the IRS\u2019s method resulted in non-taxable bank deposits being erroneously included as business gross receipts. However, since the burden of proof rests upon the taxpayer to prove the nature of the deposits, which the taxpayer was unable to do with respect to all of the deposits the IRS classified as unreported income, the IRS\u2019s findings were affirmed by the court.<\/p>\n

Strike Two<\/strong>! The IRS also denied the taxpayer claiming a home office deduction for storage of inventory. The taxpayer had contended that the use of his garage to store business records made him eligible for the claimed home office deduction. The court again found for the IRS stating that the taxpayer did not meet the conditions of the Internal Revenue Code which requires that a taxpayer have a trade or business of selling products at retail or wholesale to claim a storage deduction. The fact that the taxpayer may have stored his business records in his garage failed to constitute inventory.<\/p>\n

Strike Three!<\/strong> Taxpayer argued that he should not be assessed a penalty for failure to timely file his returns because he was unable to find a reliable accountant in a timely manner. The court found that the taxpayer\u2019s argument lacked reasonable cause and affirmed the penalty assessment.<\/p>\n

What Can We Learn from this Case?<\/strong><\/span><\/h3>\n

Taxpayers are entitled to claim every legitimate expense to reduce their tax liability to the lowest possible amount. Much can be learned by reading court cases . . . while the reasons why the IRS chose to audit this taxpayer is not public knowledge, let\u2019s consider some factors that may have perked the IRS\u2019s interest.<\/p>\n