Case: Taxpayers Cannot Deduct Unreasonable Rent Expenses or Excessive Marketing Expenses (T.C. Memo) (IRC §162)

Taxpayers, individual shareholders of both an S corporation and several C corporations operating fitness franchises, are not permitted to deduct unreasonable rent expenses or excessive marketing expenses without substantiation, the U.S. Tax Court held, disallowing the majority of Taxpayers’ claimed deductions. On examination, a revenue agent disallowed all but $6,000 of the rental expenses, determining the fair market rental value of the space used in Taxpayers’ personal residences was $500 per meeting, not the nearly $9,000 per meeting reflected on Taxpayers’ returns. The government also disallowed Taxpayers’ advertising expense deductions for excess marketing expenses. The court affirmed the disallowances, finding ...