Reference: Yapp v. Commissioner, TC Memo, 2018=47

Husband operated a single member LLC taxed as a sole proprietorship starting in 2009.  In 2010, he incurred legal fees to redraft contracts and the operating agreement. The entire $120k was allowed by the Tax Court due to the fact that his LLC was a functioning business.

Wife formed a single member LLC taxed as a sole proprietorship in 2009.  In 2009 and 2010, she worked to reformulate health supplement recipes, but didn’t have finished products to sell until February 2011.  The Tax Court upheld the IRS denial of those development costs as they occurred prior to the start of business.  Rather, they should be capitalized and amortized over fifteen years as IRC Section 195 intangibles.

This serves as a good reminder of the treatment of pre-opening costs.

Source: Tax Cuts and Jobs Act (TCJA)

Starting in 2018, individual taxpayer casualty losses are no longer a FEDERAL deductible event UNLESS a Presidentially declared disaster.

CA: California does not conform to the TCJA.  Therefore a taxpayer suffering a casualty loss (e.g., fire, flood, mud slide, etc) may be able to claim a loss for CA income tax purposes even though not allowed on the federal return.

If you’ve suffered a casualty loss, please contact us so we can work through the numbers with you.

Ref: Vanderhal v. Comm’r, TC Summary 2018-41

The divorce decree stated that payments by husband on ex-wife’s student loan debt were to be allowed as part of alimony.  On audit, the IRS maintained that they should be a non-deductible part of the property settlement incident to the divorce.  The Tax Court found in favor of the taxpayer and allowed the payments as part of alimony noting that the divorce agreement did not specifically denote the division of debts as tax free transfers of property in this case. Therefore, the payments fit within the definition of alimony under Code Sec 71 and were deductible by Vanderhal.