I love inventive taxpayers; they are the stuff that blogposts are made on. When the inventors are lawyers, it can get interesting. But when they are judges, it’s open season.

Jose Banuelos and Carol Ann Banuelos, T. C. Sum. Op. 7, filed 5/22/24, is Jose’s story. He is a retired annuitant, a pensioned ALJ (that’s Administrative Law Judge), the people who conduct fair hearings in disputes between people and administrative agencies, State, Federal, and local. They hear everything from Medicaid claims to traffic tickets. Jose works as a fill-in, taking the load from the still-unretired when the cases burgeon.

Jose gets a salary for his eight-hour day plus 3.3 hours for each opinion he writes. He also writes off $25K of unreimbursed business expenses against the $24K of salary and wages shown on his W-2.

STJ Zachary S. (“Highrise”) Fried says “Section 62(a)(2)(C) allows as a deduction from gross income in computing AGI ‘[t]he deductions allowed by section 162 which consist of expenses paid or incurred with respect to services performed by an official as an employee of a State or a political subdivision thereof in a position compensated in whole or in part on a fee basis.’” T. C. Sum. Op. 2024-7, at p. 3.

What means “fee basis”?

IRS says that means compensated by fees paid directly by the public, not paid into the fisc and redirected to the official. See my blogpost “Fee Simple – Not Absolute,” 2/9/16.

But Jose is inventive. The Fair Labor Standards Act “regulations provide that ‘[a]n employee will be considered to be paid on a “fee basis” within the meaning of these regulations if the employee is paid an agreed sum for a single job regardless of the time required for its completion.’ 29 C.F.R. § 541.605(a) (2019).” T. C. Sum. Op. 2024-7, at p. 7.

Unfortunately, AZ Judge Michael Jones lost that one, as more particularly bounded and described in the blogpost above set forth.

No direct payment, not “fee-based.”