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NEGATIVE ROLE MODELS

December 11, 2007

When we think of role models, we usually think of inspirational figures whose examples we would like to follow. I suspect, though, that we are often more influenced by cautionary role models -- as teenagers by the kid who went drinking and wrecked the car, and as adults by the guy who spent too much time at the casino and wrecked his life.

Frank Black, a North Carolina investment broker, modeled a whole series of behaviors that can inspire us to do the opposite thing. According to the Tax Court, he was nothing if not ambitious in his attempts to get around the income tax:

- He set up a "church" in his own house and donated over $45,000 to himself that way over three years, claiming it as a deduction.

- He bought a new electric range for his house and deducted the cost as "supplies."

- He spent $1,150 on an aquarium for his son's sixth birthday, and deducted the cost as "supplies."

- He bought more $929 more "supplies" in the form of having a sofa in his house reupholstered.

- When he wrote checks to his college-age daughter, he deducted the amounts as "supplies" and equipment purchases.

- He told the Tax Court that his six and eight-year old children worked 1,000 hours per year in his business.

This all worked out badly for Mr. Black. The Tax Court imposed over $70,000 in civil fraud penalties on him yesterday. So don't do that stuff.

Cite: Black, T.C. Memo 2007-364.

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