Sex Toy Distributor Sues IRS to Revive Insurance Deductions (1)

A sex toy distributor based in California sued the IRS to challenge a $997,000 portion of its tax bill, arguing the agency improperly disallowed its deductions for costs of goods, insurance premiums, and other ordinary business expenses.

XR LLC, an e-commerce fulfillment partnership that generates a majority of its revenue from sex therapy equipment and toys, asked the US Tax Court on March 27 to absolve it of liability for an imputed tax underpayment and accuracy-related penalty imposed by the IRS for tax year 2020. The agency wrongfully denied more than $2.2 million in claimed business expenses and disallowed deductions ...