1) Overdone Overdrafts:
A couple trying to keep their dry-cleaning businesses from
going under had been denied business loans by their bank who had judged them to
be a bad credit risk. They came up with
a plan to ease their cash flow problems.
They regularly overdrew their bank account and would pay the overdraft
when the bank called. This ended up
costing them more than $30,000 a year in overdraft charges which they deducted
from their taxes as a business expense.
The Tax Court denied the write-off, stating that the charges were
unreasonably high.
2) Red Blood Cell Depletion Allowance:
Because of her rare blood type, a woman made more than
$7,000 in one year as a blood plasma donor.
She tried to offset the additional income through a tax deduction,
claiming a depletion for the loss of both her blood's mineral content and her
blood's ability to regenerate. Depletion
is a proper write-off for firms that remove deposits of minerals such as coal
and iron ore from the ground. The Tax
Court ruled that individuals cannot claim depletion on their bodies.
3) Prostitutes And Porn:
A tax lawyer spent more than $65,000 a year on prostitutes
and pornographic materials which he deducted as a medical expense. He stated the positive health effects of sex
therapy. The Tax Court denied the
write-off saying his conduct was illegal and also wasn't the treatment for a
medical condition.
4) Burning Down The House:
A man relocated his family to a new state after a job
transfer. His wife didn't like the new
location and returned home with the kids.
He visited over a holiday weekend and discovered another man had been
living with her. They argued and she
left the house at which time he put some of her clothes on the stove and set
them on fire. It got out of control and
burned the house down. He claimed a
casualty loss deduction and the Tax Court denied it saying they could not allow
him to deduct a loss from a fire he set.
5) Hush Money:
A pro football player got into an altercation with a lady
friend at the time that he was in the process of negotiating a contract
extension. She filed a criminal
complaint against him. The team owner
said if the matter became public, they would cut or trade him. He agreed to pay her $25,000 to keep things
quiet and he got his four-year contract extension. When he tried to take the payout as a tax
deduction, the Tax Court said the payment was a result of a personal
relationship rather than a business expense.
6) Designer Clothes:
The manager of a designer label boutique was required to
purchase and wear the designer's clothing as a condition of her job to project
the image of an exclusive life style. A
court denied her deduction because the clothes could be worn outside work
regardless of the fact that they were not her personal taste of clothing.
7) Las Vegas Gambling Junket:
A repo company sponsored a bus trip to Las Vegas in an
effort to drum up business from banks.
The people talked informally about the collection business, but everyone
spent most of the weekend gambling and no formal meetings were scheduled. The trip was very successful and the repo
company got a lot more business from the attendees. However, the Tax Court denied them the
deduction of the cost of the junket because the business discussions were only
a small part of the trip.
8) Meals With Colleagues:
A partner in a law firm met every day with his colleagues at
lunch to discuss the firm's business.
Unfortunately, the IRS denied the deduction for the meals as being a
business expense. The law firm took it
to Tax Court where the court agreed with the IRS that the meals were a
non-deductible personal expense.
9) Wrecking A Rental Car:
Heavy fog had an airline employee stranded who needed to get
to New Orleans. He worked out a deal
with a rental car company to take one of their cars that they needed driven to
New Orleans. The company would have the
car transported without having to pay a driver and he would get to New Orleans with
no charge for the rental car. Unfortunately,
he wrecked the car in Mississippi and had to pay for damages. When he tried to deduct the payment as a
casualty loss, the Tax Court denied the deduction because he wasn't the owner
of the car.
10) Shoddy Construction:
A couple paid a builder to construct their home. Shortly after they moved in, they found a
series of problems with the house that made living there impossible. They deducted a large theft loss on their
taxes, claiming the builder defrauded them.
The Tax Court denied it stating they were the victims of poor
workmanship rather than fraud.
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