Overview of Avery’s Denied Tax Deductions
In their article “Attorney’s racing activities fall short of the finish line,” McKinley and Geiszler (2023) discuss the situation with James Avery, an attorney whose claim for tax deductions related to advertising expenditures was later denied by the Tax Court of the United States. Avery had attempted to deduct more than $350,000 for advertising expenses on his tax returns between 2008 and 2013. However, the court denied most of these deductions due to inadequate evidence (McKinley & Geiszler, 2023). Therefore, the court ruled that none of the stated expenses met the specific qualifications to be regarded as usual and necessary business costs.
Use of Racing for Advertising and the Court’s Rejection
Avery had participated in different car shows, attaching a sticker with the Avery Law Firm logo to the back of a racing car to advertise it. The court concluded that Avery’s racing activities were not directly connected to his legal services and were mainly for his own enjoyment.
Tax Filing Irregularities and IRS Actions
Moreover, Avery had neglected to submit tax returns from 2008 to 2009, which had then been filed by the IRS. He eventually filed his returns from 2010 to 2013, but the IRS still sent him a notice of deficiency (McKinley & Geiszler, 2023). The IRS accepted more than $50,000 of the claimed deductions but disallowed the rest.
Personal Enjoyment vs. Business Intent
Finally, the court determined that Avery was not entitled to deduct his racing-related costs as personal expenses since they were not common. Additionally, the court determined that his car collecting and racing activities constituted hobbies and that the decals on his race car were too small to have the same impact as a billboard or newspaper ad. Furthermore, the court found that Avery’s racing activities were motivated by enjoyment, not a desire to advertise his legal services. Therefore, the court denied Avery’s claim of additional advertising expenses.
Reference
McKinley, J., & Geiszler, M. (2023). Attorney’s racing activities fall short of the finish line. Journal of Accountancy. Web.