Many people have come up with ridiculous arguments to justify tax deductions, which cause one to roll one’s eyes and say, “Good grief, give me a break!” Some of the most creative that the tax courts found inconclusive are:
1. Overdone Overdraft
A couple which was struggling with two non-performing dry-cleaning businesses could not get a loan from their bank because they were at risk of bad credit. So they opted to regularly overdraw their account and then satisfy the overdraft charges when the bank called them. This strategy caused them to incur more than $30,000 a year in overdraft charges, which were deducted as business expense. In the end, the couple applied for bankruptcy.
2. Red Blood Cell Depletion Allowance
A woman with a rare blood type made over $7,000 in a year as a blood plasma donor. She set to offset the income by claiming a depletion deduction for the loss of both her blood mineral content and her blood’s ability to regenerate. The Tax Court found that individuals could not claim depletion on their bodies unlike firms that remove natural resources as minerals.
3. Burning down the House
A worker got a job transfer and hence relocated his family to a new estate, but his wife did not like the idea so returned home with the children. On visiting the home over the holiday weekend, he found his wife was living with another man there. After an argument, the wife left and the man put some of her clothes on the stove and set them on fire. The flames spread and burned down the house. The man claimed a casualty loss deduction, but the Tax Court refused, reasoning that allowing him to deduct a loss from a fire he set would violate public policy.
4. Designer Clothes
A manager of an Yves Saint Laurent boutique was required to purchase and wear the designer’s clothing as a prerequisite of her job to project the image of an exclusive lifestyle. She made tax deductions for her clothes as an employee business expense because she only wore the clothes at work. In her view, the clothes were too classy for her simple lifestyle. The court however denied her deduction because the clothes were suitable for wear outside of work, although they were not her taste.
5. Las Vegas Gambling Junket
A repo firm sponsored a bus trip to Las Vegas in an effort to drum up business from banks. No formal business meetings were set up though the employees informally held discussions with their collection contacts on the ride to Vegas. The business got more clients from the trip attendees but the Tax court denied deductions for the junket because the business discussions were an insubstantial part of the trip.
6. Meals with Colleagues
A law firm’s partner met daily with his colleagues at lunch to discuss the firm’s business, like case assignments and settlements. However, the IRS could not consider picking up part of the tab. The Tax Court sided with IRS arguing that the cost of the meals was a non-deductible personal expense, even though business was discussed.
7. Wrecking a Rental Car
An airline worker wanted to get to New Orleans, but he was stranded by the heavy fog. He worked a deal with a rental car company where he paid nothing for a car that the company wanted driven to New Orleans. He, however, wrecked the car on his way, and had to pay for the damages. He tried to deduct the cost as a casualty loss but the tax Court denied the deduction since he was not the owner of the vehicle.
8. Shoddy Construction
A couple, having built a dream home discovered a series of problems with the house that made living in the house horrible. They claimed that the contractor defrauded them and deducted a large amount on their tax return. The Tax Court denied their deduction saying that they were victims of poor construction and not fraud.
So if you’re thinking of trying to deduct any similar expense, think again.