Tax Court in Brief | Dunn v. Comm’r | Depreciation Deduction, Rental Income, and Passive Activity

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The Tax Court in Brief – November 28th – December 2nd, 2022

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

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Tax Litigation:  The Week of November 28th, 2022, through December 2nd, 2022

Heather P. Dunn and Edison Dunn v. Comm’r |T.C. Memo 2022-112 | November 29, 2022 | Wells, J. | Dkt. No. , No. 9996-17

Short Summary:  At issue in this case are several deductions that the taxpayers claimed – including depreciation and certain losses from passthrough of their wholly-owned corporation.  Unfortunately, the taxpayers in this case failed to maintain sufficient documentation and failed to satisfy multiple rules that would have allowed them to claim such deductions.  As a result, the deductions were denied, and accuracy-related penalties were sustained.

Key Issues:

Facts and Primary Holdings

Key Points of Law:

InsightThis case demonstrates the necessity of adequate documentation to substantiate frequently litigated deduction provisions.  In particular, this case shows the necessity of maintaining proper formalities as it relates to ownership of property and the expenses associated with such property.  Here, the taxpayers attempted to deduct amounts that were properly deductible by their wholly-owned corporation, and vice versa – an error that could have been corrected with accurate bookkeeping.