To complete this activity,read theWheir
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US Tax Court case, then answer the following questionsin your own words:
- What was the US Tax Court's decision in the case (i.e. was the taxpayer allowed to deduct the cost of the buffalo meat and/or skin or body applications)?
- Why did the US Tax Court allow or disallow these deductions? Explain. Make sure to address what the rules are under IRC section 162 and IRC section 262 and how these rules are applied in this case.
- Do you agree with the US Tax Court's decision? Why or why not?
Press esc | to exit full screen Excerpt from: T.C. Summary Opinion 2004-117 UNITED STATES TAX COURT COREY L. WHEIR, Petitioner V. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 4350-03S. Filed August 30, 2004. Corey L. Wheir, pro se. Frederic J. Frenandez, for respondent. COUVILLION, Special Trial Judge_ 2 _ Respondent determined deficiencies of 52,168, $1,958, and 51,470, respectively, in petitioner's Federal income taxes for 1999, 2000, and 2001. The issues for decision are: . . . (2) whether, for the 3 years, petitioner is entitled under section 162(a; to deductions for certain expenses incurred in a body building activity. Petitioner is a boilermaker and has been engaged in this activity since 1993. In addition to his work as a boilermaker, petitioner was also a professional bodybuilder. In this activity, petitioner lifted Heights, posed to display his muscular finesse, trained other bodybuilders, and gave seminarsl Some of his poses were published in bodybuilding publicationsr Petitioner won awards and received at least one endorsement from a supplement manufacturer for which he received supplements valued at $100 per month. petitioner reported the income and expenses of his bodybuilding activity as a trade or husiness on Schedules c, Profit or Less From Business, of his Federal income tax returnsr For the years at issue, petitioner reported the following income, expenses, and net losses: -3- 9 Gross income 5 2.405 S 8,840 $ 3,975 Total expenses 11,771 14,703 14,539 Net 1.033 {9,366} (5,868} (10,564) In the notice of deficiency, respondent disallowed deductions of expenses for supplements in the amounts of $4,530, $4,352, and 54,744, respectively, for the years in question. Respandent determined that these amounts represented payments for products that were personal and, therefore, were not deductible under section 262. Included in the disallowed deductions labeled as \"Supplements" were the costs of bison (buffalo) meat, which petitioner consumed daily, year round, at the rate of 3 pounds per day' Petitioner contends be consumed the meat for muscle development because the protein levels in buffalo are much higher than those in beef or other meat products Petitioner also used a variety of other products that were not ingested hut were simply sprayed on or massaged into the skin to enhance his appearance. One of these products was called ProTan Muscle Juice Professional. Posing Oil and, according to instructions, was applied "prior to pumping up backstage fcI optimum effects." Another similar product called Blow Out was applied to the body 5 minutes before a workout. Still another product was massaged over the body several hours before a posing to provide a suntan brown color at a deep tan to the body. Most of these products could not be purchased in local health food stores but were purchased solely through advertisements in bodybuilding publications. Respondent, in the notice of deficiency' disallowed the deductions claimed for the described items on the ground that, under section 262, these expenses were personal hecause the products described could be consumed by bodybuilders and nonbodybuilders as well. Generally, for an expenditure to be an "ordinary and necessary\" business expense, the taxpayer must show a bona Eide business purpose for the expenditurer Challenge Mfgr Co. v Commissioner, 37 T.C. 650, 659-660 (1952). For expenses to be deductible as ordinary and necessary, they must be reasonable in amount, because \"the element of reasonableness is inherent in the phrase 'ordinary and necessary.'\" Commissioner v. Lincoln Elec. Cor, 17E Fizd 815, 817 (6th Cir. 1949). Under section 262, a taxpayer is not allowed deductions for personal, living, or family expenses. The peculiarity of petitioner's business activity is that it included expenses for things that are generally considered personal. In Commissioner v. Heininger, 320 0.5. 467 (1943), the Court held that whether expenses are ordinary and necessary business expenses and, therefore, deductible is a question of fact, and the taxpayer has the burden of demonstrating that the purpose of an expenditure is primarily business rather than personal, and that the business in which the taxpayer is engaged benefited or was intended to be benefited by the expenditure. In numerous cases' the courts have decided that, where a business wardrobe was a necessary condition for employment, costs for the wardrobe are generally not deductible under section 262 under the general rule that, where with respect tn the issue invclving expenses incurred in petitioner's bodybuilding activity, respondent disallowed expenses petitioner claimed for supplementsr which included buffalo meat consumed daily and various skin or body applications to enhance petitioner's physical appearance as a competitive bodybuilder. Section l62(a: allows a deduction for all "the ordinary and necessary expenses paid cr incurred . . r in carrying on any trade or business". To constitute a trade or business, the taxpayer must be engaged in the activity with a primary motive of generating a profit' Petitioner was engaged in body building with the primary intent to generate a profit, and thus the body building activity is properly classified as a trade or business and the expenses he incurred that were ordinary and necessary to that activity are deductible under sesectiun 162. As noted above, petitioner also used a variety of other products that were not ingested but were physically applied to the body primarily to enhance his appearance as a professional bodybuilder. The evidence presented indicates that these products were marketed only through bodybuilding publications and were not generally for sale through normal marketing outlets. As to these products, while there may be some doubt, the Court concludes, on balance, the expenses were primarily business rather than personal and that Petitioner's body building business benefited or uae. intended to be benefited by the expenditure. Petitioner, therefore, is allowed a deduction for this portion of the expenses under section 162. Decision will be entered under Rule 155. business clothing is suitable for general wear, the expense is more inherently personal than business related. Donnelly v. Commissioner, 262 F.2d 411 :2d Cir. 1959). Such costs are not deductible even when it is shown that the expense would not have been incurred but for the employment. Stiner v. United States, 524 F.2d 640 (10th Cir. 1915). However, exceptions have been allowed where an item is useful only in the business environment in question. Hynes v. Commissioner, supra at 1290. This case, which does not involve clothing, can nevertheless be analogized with these general rules. With respect to petitioner's consumption of buffalo meat, respondent has not challenged petitioner's argument that the meat developed proteins and strength that enhanced his bodily physique. However, there is no doubt that buffalo meat is also consumed as food by nonbodybuilders, albeit not with the regularity and in the quantities consumed by petitioner. On balance, the Court holds that petitioner's expenses for buffalo meat are inherently personal and are not deductible under section 262. Respondent, therefore, is sustained on that portion of the expenses at issue
