Tax Court Corner: No Deduction for CPA’s Antique Office Furnitureby
My wife will tell you that I have an addiction. If you ask me, I’ll tell you I have a hobby.
My wife states that I am in denial, but honestly, I can stop anytime that I want to. My hobby doesn’t adversely affect my wife or family because when I participate in it, it’s usually at work or when no one else is around. My hobby does not keep me indoors on a beautiful Saturday or Sunday. I found a workaround for that. So, I don’t see how it is an addiction. Although when I go without it for a period of time, I miss it a lot and think about it. Maybe I do have a tiny problem.
My addiction, I mean hobby, is sports. I was born in Indianapolis and moved to Florida when I was 2 years old. Having lived in the “Football Capital of the United States,” my favorite sport by far is football. High school, college, the NFL, even Canadian football – it doesn’t matter.
On any given Saturday during football season, my DVR will be recording up to six games at a time. In fact, I get upset at my DVR because it can only record six games at one time. On Sundays you will find my oldest son and I in Tampa at the Yucks, I mean Bucs, games. Yes, I am a long-suffering Tampa Bay Yucks, I mean Bucs, fan.
When the calendar turns to November, it is time for college basketball and the Orlando Magic. The Hoosier in me loves college basketball. I am not a big NBA fan, but I follow the Magic because I am in Orlando. My favorite college conferences are the Big East, Big Ten, Pac-12, Atlantic 10, and the Big 12.
Springtime comes and it is baseball season. I spend about $150 a year on MLB Extra Innings so I can get all of the games. My favorite teams are the Chicago Cubs (my wife is from Chicago), the Los Angeles Dodgers (I am a UCLA alum), the Minnesota Twins, and the Cleveland Indians.
Summertime is still baseball season, but there are other sports. Soccer is huge in Orlando, which got an MLS team two years ago, and we have season tickets. Other teams I follow are the Tampa Bay Rowdies in the North American Soccer League and Arsenal in the English Premier League. In the Canadian Football League, I follow the Montreal Alouettes and the Edmonton Eskimos, and during the baseball All-Star break this past summer, I discovered Australian football.
Now that I think of it, maybe I do have a tiny problem. I watch a majority of these sports at work – meaning they are on in the background. I hear the play-by-play call and when the audience breaks out in a loud cheer, I’ll glance over at the game. I have three monitors in my office – two are actually 42-inch TVs. I use one to see the source documents that I need at any given moment, one screen I’m working on, and the third screen has the game.
And there’s more. I have many collections. I have a large selection of jerseys; I especially like the most obscure jerseys a team wears that you can barely find. In fact, I have bought so many jerseys that I get them at cost now with just a small markup. I actually have a jersey consultant who checks in with me every so often to tell me the new and obscure jerseys that they have in my size.
In addition, I collect suits and French cuff dress shirts, and with the French cuffs comes my collection of cuff links. At the office, I collect sports memorabilia: I have signed baseballs, baseball cards, footballs, mini helmets, even a collector’s edition unopened box of cereal. My argument with my wife when I bought these items (and there was an argument) was that they were tax deductible.
I recently stumbled upon the Tax Court case Kilpatrick v. Commissioner, TC Memo 2016-166. Sam Kilpatrick filed the case pro se, probably because he is a licensed CPA out of Georgia. As it turns out, he is a collector as well. He collects antiques and works of art.
His main job is with a CPA firm in Georgia, but he started his own CPA practice on the side, and on his tax return he had a Schedule C that incurred a loss and approximately $40,000 in unreimbursed employee expenses. He was audited, and you would think that he would know better than to file a tax return with a Schedule C loss, then turn around and have $40,000 in Schedule A unreimbursed employee expenses.
His home office was decorated with antique chairs and desks. In addition, he had several oil paintings that he had purchased that hung in his home office. Kilpatrick deducted these items as office expenses, and the total of the purchases was about $10,000.
The IRS issued Kilpatrick a notice of deficiency for the 2009 and 2010 tax years because at the audit, he disagreed with the IRS disallowing some of his Schedule C and Schedule A deductions.
The Tax Court agreed that Kilpatrick passed the “regular and exclusive use” test for the home office, but it denied the deduction for the antique furniture and oil paintings because these expenses did not fall under Code Section 162(a), which allows a deduction for “ordinary and necessary” business expenses. These costs, the Tax Court said, were capital in nature, and capital expenses are not ordinary and necessary. The court also stated that the items were not office expenses because the amount per item was too high.
In addition, the court entertained the idea of the expenses being capitalized, but it quickly disregarded that notion because a depreciation deduction is for “wear and tear.” The fact that these items would increase in value precluded them from being depreciated.
Now back to my collection of sports memorabilia. I have a separate office where my collection is displayed, which also serves as our conference room. When I meet with a client, we go into that office and the memorabilia is basically the decor. Would the fact that the memorabilia increase in value preclude those items from being deducted? Or would the fact that my collection costs nowhere near $10,000 weigh in? In totality, it was probably more like $1,000, maybe.
So, I am asking for your comments. What do you think?
Craig W. Smalley, EA is the CEO and Founder of CWSEAPA®, PLLC, located in Orlando, Florida, with clients all over the country in every industry. He has been admitted to practice before the IRS as an Enrolled Agent, and has a Master's Certificate in Taxation from UCLA. He has been in practice since 1994, specializing in individual, partnership...