Tax Court in Brief | Sonntag v. Commissioner

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Tax Litigation: The Week of February 14 – February 18, 2022

Sonntag v. Comm’r, T.C. Summary Opinion 2022-3 | February 17, 2022  | Weiler, J. | Dkt. No. 6540-20S

Opinion

Short Summary: This case focuses on the deductibility of item-by-item expenses contained on Schedule C (Profit or Loss From Business) of the taxpayers’ 2017 Form 1040 Individual Tax Return. Mainly, one of the taxpayers was music producer and musician, and the opinion addresses a wide range of expense categories that a musician might incur, including books and publications, costume cleaning, physical culture (i.e., Zen Fit training sessions), iTunes, Spotify, and Netflix. The IRS issued a notice of deficiency disallowing deductions for $37,800 of the total $47,385 of Schedule C expenses. The taxpayers challenged that decision.

Primary Holdings:

Key Points of Law:

Insights: For an individual taxpayer to deduct expenses incurred in a trade or business, the taxpayer must have and maintain adequate records, contemporaneously made with the expense, to justify the available deduction. Expenses for goods or services that are inherently personal are not deductible under section 162. Travel logs, odometer readings, and other contemporaneous records to show the time, place, and business purpose for an expense are critical to appropriately substantiate entitlement to a deduction for an expense incurred in carrying on a trade or business.