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NOT ONLY IS CHEATING BAD, THE COSTS ARE NON-DEDUCTIBLE

June 01, 2005

The Tax Court yesterday reported a case where a roofer concealed income by cashing checks at a currency exchange, rather than depositing them in the bank.

The court find that the taxpayers committed fraud. Twisting the knife, the judge also held that the exchange's check-cashing fees were non-deductible:

The record shows that the Money Exchange did charge 2.5 percent of the value of each check cashed as a fee. However, in order to claim a deduction, the fees must be ordinary and necessary expenses of running petitioners’ business. See sec. 162. HRDC maintained a checking account to which petitioners could have deposited the money from the extras for no charge. Petitioners testified that they cashed checks at the Money Exchange because they knew the owner and it was within blocks of the office (although Mr. Payne, who did not drive, needed someone to drive him there each time he went). It is obvious that petitioners used the Money Exchange to avoid the inclusion of the income in their bank records. These reasons are not related, let alone ordinary and necessary, to HRDC’s business. Therefore, petitioners are not entitled to deduct the cost of check-cashing fees.

Cite: Payne v. Commissioner, T.C. Memo 2005-130

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