Office

Ch J Kathleen (“TBS =The Big Shillelagh”) Kerrigan shows Greatest Common Factor, T. C. Memo. 2023-39, filed 3/23/23  how to substantiate a deduction for a home office. GCF is a C Corp, and claims home office expenses of $13K in each of the two (count ’em, two) years at issue. The Section 280(A) disallowance of home-related deductions doesn’t apply to C Corps.

Ch J TBS: “A C corporation ‘may deduct payments made to lease home office space from an employee (or from its owner) as rent if they are ordinary and necessary expenses [under section 162] directly connected with or pertaining to the corporation’s trade or business.’ Here there is no evidence in the record indicating that there was any such rental agreement. Further, there is no evidence that petitioner expended any of its funds in maintaining the alleged home office. There are therefore no grounds on which petitioner, a C corporation, could deduct the expenses related to Mr. [50% shareholder]’s home office under section 162.

“We also note that even if Mr. [50% shareholder] were the taxpayer, he would not be entitled to home office deductions because the dwelling was not  ‘exclusively used on a regular basis . . . as the principal place of business for any trade or business of the taxpayer.’” § 280A(c)(1)(A).” T. C. Memo. 2023-39, at pp. 3-4 (Citations and name omitted).

But Mr. 50% shareholder has other problems. He worked as a subcontractor on top secret military projects, and the only income GCF showed was what Mr. 50% shareholder got paid from the prime contractor.

“During the years in issue petitioner’s only income was from [prime contractor]. Mr. [50% shareholder]’s work for [prime contractor] was performed at the Los Angeles Airforce Base. Because of the classified nature of his work for [prime contractor], Mr. [50% shareholder] was not allowed to take home any work. Accordingly, we sustain respondent’s disallowance of petitioner’s home office deduction.” T. C. Memo. 2023-39, at p. 4. (Names omitted).

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