Dealing with taxes can often be more art than science, and some people have more talent as artists than others. Here are some of the most brazen and outrageous deductions we’ve personally heard about in recent years – and some that the IRS did not allow.
Five Oddball, Successful Deductions
1) A pair of skis – About 20 years ago, I was writing catalogs for Yamaha Motorcycles. When the agency where I worked won the Yamaha Snowmobiles account, I had the chutzpah to buy a pair of skis from my client using his company discount and deducted them as business research.
2) Cases of wine – If you entertain clients at your home, you can deduct 50 percent of the cost of food and liquor. But as an ad agency Creative Director writing a TV campaign for a California winery, my friend Brent took a more creative approach. He told his accountant that he bought competing products, put the labels in a binder, and wrote notes about each wine’s qualities. When the accountant heard how detailed Brent’s research was, he excitingly proclaimed, “If the IRS audits us, we annihilate them!” But when I asked Brent if I could see his binder, he said, “If I ever get audited, I’ll show it to you!”
3) A hairdresser’s entire wardrobe – It’s no secret that barbers and hair stylists can list the cost of equipment and supplies on their itemized deductions. But a hair stylist client of JE Bookkeeping’s Jessma Evans brazenly wanted to write off the cost of her complete wardrobe because she wore it while working with her clients. Jessma and the woman’s accountant both advised against it. The hair stylist was audited by the IRS and Jessma says, “She was so passionate in her plea to the auditor that he actually allowed it.”
4) Junkyard cat food – One famous case speaks of a Tax Court issue wherein junkyard owners listed cat food on their Schedule C, and IRS attorneys allowed as a deductible expense. The owners explained that they put out bowls of food nightly to attract feral cats. The wild cats kept the property free of rats and snakes, making the junkyard safer for the customers.
5) A breast enlargement – In a well-documented case, a stripper wanted to earn more money and receive bigger tips from her appreciative audiences. She used the stage name of “Chesty Love” and scheduled an operation to match her name with size 56FF implants. A Tax Court judge – who was female – approved the deduction for the cost of the surgery.
Five Brazen, Failed Deductions
1) A home-office deduction for drug dealing – A legal case from 1981 involved a drug dealer in the Minneapolis area was sold substantial volumes of marijuana, cocaine, and amphetamines. He was caught, convicted, audited, and owed $17,000 in back taxes on drug earnings that were never reported to the IRS. The drug dealer appealed the audit, claiming that the IRS did not consider his tax-deductible costs incurred in running a business. He won the audit for a home office deduction, but still went to prison.
2) Buffalo meat – A professional bodybuilder successfully wrote off the cost of body oil to make his humungous muscles glisten in competition, but a Tax Court denied his other expenses, such as special vitamin supplements and especially buffalo meat.
3) Arsonist payments – A man who owned a furniture store tried in vain to sell his business for several years. Out of patience, he eventually paid $10,000 to someone to set fire to the building and burn it to the ground, collecting a cool half-million dollars in insurance money. The big misstep: He then tried to deduct the “consulting fee” to the arsonist on his taxes. The IRS audited him and sent both men to prison.
4) A $2 million office building – A famous entertainer’s manager and family member wanted to purchase a building and production space worth $2 million, but only if they could deduct the entire amount during the year of the purchase. When their CPA told the manager that this type of expense typically was deducted over a 30-year span, a suitcase full of cash was given to the accountant as an incentive to “make the investment work” that year. It didn’t. He refused the cash and resigned the client.
5) A $43 million charitable deduction – A billionaire hedge fund manager believed he was making a donation worth $43 million, thus saving a substantial amount on his tax returns in 2005 and 2006. Though the billionaire claimed he was following his tax professional’s advice, the IRS didn’t see it that way, claiming that rather than getting a deduction, he owed the government $14 million in back taxes, plus $5 million more in penalties.
Got an unusual, outrageous or entertaining tax deduction that you’d like to share? Please comment below!