SUBJECT: Research Memorandum

Facts: Our client performs bookkeeping work for her clients. She performs most of her client work at the client's office. She has about ten clients and spends about 4 hours per client each week. She also has a dedicated office at her home where she does all of her administrative work. The administrative work she performs is at her home office to include billing, record keeping, and training.

Additional Facts: Area of her home used for business - 500 square feet Total area of home - 5,000 square feet Annual indirect costs o Gross income from business - $100,000 o Deductible mortgage interest - $25,000 o Real estate taxes - $1,500 o Utilities - $2,500 Cost basis in the house - $350,000 Cost basis in the land - $50,000

Questions:

What she wants to know is whether she can deduct expenses related to her home office?

What is the estimated amount of the home office deduction? What are the requirements to take a home office deduction?

Is there a code section that applies to our fact pattern?

I remember there was a famous Supreme Court case in this regard, please find that and provide a quick summary of the case. I also recall the IRS issuing guidance on this as well in a Revenue Procedure. Does the IRS provide a publication on this topic? How do we report this deduction on her Form 1040?