Discussion:Investment expense?
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Discussion Forum Index --> Advanced Tax Questions --> Investment expense?
Discussion Forum Index --> Tax Questions --> Investment expense?
| 16 October 2008 | |
Are the following currently deductible as investment expense or should they be capitalized as startup expenses?
Other facts:
Sec. 212 and Regs. Sec. 1.212-1 would provide a Sch A deduction subject to the 2% limitation where the expenses were incurred for the management, conservation or maintenance of income producing investments where the income either has or will be included in taxable income. My concern is that the taxpayer has not yet purchased any property. So the expenses look to me more like startup expenses that must be capitalized until the investment activity begins (i.e. when investment property is purchased). Yet the existence of the rental property and the taxpayer's history in owning multiple such properties makes me wonder whether there the expenses incurred in 2007 are related to an expansion of the taxpayer's historical activities. If so, they would be currently deductible. -- Larry Hess, CPA | Albuquerque, NM | |
Death&Taxes (talk|edits) said: | 16 October 2008 |
| While the investment is slightly different, you might look at Carl H Jones III (131 TC No. 3). There are those who feel that had Jones been in the trade or business of day trading, the result might have been different. | |
Harry Boscoe (talk|edits) said: | 16 October 2008 |
| According to the IRS, "You cannot deduct any expenses for attending a convention, seminar, or similar meeting for investment purposes." I think this was in Publication 17. I don't know if it extends to the travel expenses of getting there... | |
| 16 October 2008 | |
| Harry, that's right. It's in Sec. 274(h)(7). That disallows travel expense. But what about the books & DVD? They cost over $5,000 but I can't find any prohibition against deducting them - as Misc. Itemized Dec. subject to 2% of AGI on Sch A. -- Larry Hess, CPA | Albuquerque, NM | |
Death&Taxes (talk|edits) said: | 16 October 2008 |
| Going back to Carl Jones, we read: "Section 274(h)(7) is broad and disallows deductions pursuant to section 212 for the costs, including registration fees, travel, meals, and lodging, incurred to attend a convention, seminar,..."
Now in your case, I note that there were no seminar fees paid, but I would think the connection between the material purchased and the meeting would be very close, especially if these materials were written or produced by the people running the show. | |
| 16 October 2008 | |
| The books & DVDs were written & produced by the promoters. Are you thinking that the books & DVDs would not be allowable? I am told that their purchase was not required. I haven't had a chance to read the case yet. But I will.) -- Larry Hess, CPA | Albuquerque, NM | |
Death&Taxes (talk|edits) said: | 16 October 2008 |
| I was trying to be a devil's advocate and pretend that I was an IRS Revenue Agent, or worse, an office auditor. I hate to say this but I have this vision that the promoters gave perhaps 20% of the information orally and suggested everything could be found in the books or DVDs.....sort of a teaser, like the people who used to come to town and give free talks on Living Trusts and the like.
One method I have always used is to make my client to defend himself toward my objections. I want them to believe in their position, to say it without smiling. | |
Death&Taxes (talk|edits) said: | 16 October 2008 |
| Alas, the late Farfel, like any sheepdog, used the stare them down attitude. Now my new canine, Watson, an Old English/Otter Hound mix, does the same. I think they learned it from Charles Laughton in Witness for the Prosecution. My method is more like that of Jeremy Northam in the newer version of The Winslow Boy.
Without more research, you have stumbled on one of what could be a gray area [suppose he bought the material by mail, or on the Internet.....gosh, I have a thick tabloid today from NATP full of books and DVDs]. I am sure there are other cases out there, just waiting to be read. I would note that Notice 87-23 gives the same general limitations as the wording of Jones, which Checkpoint cites in explaining 274(h)(7). But if you go back to the Committee Reports of TRA 86, the famous Blue Book, you find that Congress was concerned that these abuses, along with the personal consumption issue that arises with respect to any deduction of personal living expenses, justify denial of any deduction for the costs of attending a nonbusiness seminar..... So now, one side can say, Congress did not intend to rule out books [DVDs weren't around then] while the other side will highlight the phrase 'any deduction for the costss of attending.' You pays your money, you takes your choice. | |
| 17 October 2008 | |
| Yes, since the taxpayer is not in the trade or business of real estate development or sales, expenses related to the "flipping" activity would probably be nondeductible expenses. Lots of case law on this. | |
