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Guinn v. Dep't of Revenue4/19/2005
at influence the characterization of the expense as business or personal.
Even if the court was persuaded that Plaintiffs' claim for a portion of the legal fees should be allowed as an ordinary and necessary business expense, Plaintiffs failed to substantiate how they computed the amount they claimed. The documents for professional services from Guinn's attorney state that the services were for dissolution of marriage with no allocation of attorney's time spent and fee charge for the Order. (Ptfs' Ex Item 5A at 5, 7 and 10.) There was no other evidence submitted to the court.
The court concludes that Defendant's denial of the legal fees as an ordinary and necessary business expense is correct.
E. Travel Expenses
On their 1999 income tax return, Plaintiffs deducted as travel expenses the costs incurred for trips to Los Angeles, Orlando, and Michigan. The auditor and conference officer disallowed the cost of Plaintiff's (Susan J. Guinn) airfare for all trips and all travel costs deducted by Plaintiffs for their three trips to Michigan. (Def's Ex A-3-4.) Plaintiffs rebut Defendant's adjustment, stating Susan J. Guinn was a "partner in this business venture" and there "were two necessary business reasons to travel to Michigan. First was the promotion of the book" and " he second reason for traveling to Michigan was to take care of property that I [Guinn] owned." (Guinn's' letter at 3, Jan 16, 2005.)
Even though Plaintiffs believed that it was "necessary and customarily required to have the wife be a visible and an active participant in promotion and sales of this type of book", the law has narrowly defined when travel expenses incurred by a spouse may be an allowable deduction. (Guinn's letter at 3, Jan 16, 2005.) The law requires that travel expenses paid or incurred with respect to a spouse (Susan J. Guinn) are only deductible if all of the following three requirements are met:
1. The spouse is an employee of Guinn;
2. The travel expenses incurred by the spouse are for a bona fide business purpose; and
3. The travel expenses could be deducted by the spouse.
IRC Sec 274(m)(3) (emphasis added). In this case, Plaintiffs are unable to meet all three requirements. Generally, a partner is not an employee. If Susan J. Guinn is a partner, she is not an employee of Guinn. Plaintiffs offered no evidence to show that she was an employee of Guinn. Defendant's disallowance is upheld.
Guinn wrote to the court and testified that the trips to Michigan were for two "necessary business reasons." (Id.) Beginning with Guinn's stated purpose to "take care of property that" he owned, Defendant testified that Plaintiffs' purpose for traveling to Michigan was to complete the sale of Guinn's property which in prior years was his personal residence. (Id.) Guinn did not refute Defendant's testimony. However, he did testify that because Michigan is a community property state his "wife had to be party to the final closing documents." (Id.) Travel expenses incurred for the sale of a personal asset like a residence do not qualify as allowable ordinary and necessary business expenses.
Guinn also wrote and testified that while he was in Michigan he "set-up meetings with distributors there. This led to a new distribution relationship in 2000 with a different distributor other than the initial distributor-than Books, Etc." (Id.) Because the court previously determined that the time spent in Michigan to complete the sale of Guinn's property was personal, Guinn can deduct all travel costs incurred where both business and personal activities take place only if the travel was primarily for business. See Treas
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