Charles E. King - Page 5

            The home office deduction is, therefore, limited to the excess of                             
            the gross income generated from the business activity conducted                               
            in the office, over all other deductible expenses attributable to                             
            such activity, but which are not allocable to the use of the unit                             
            itself.  Grinalds v. Commissioner, T.C. Memo. 1993-66 (citing H.                              
            Rept. 99-426, at 134-135 (1985), 1986-3 C.B. (Vol. 2) 1, 135).                                
            In other words, the deduction may not create or increase a net                                
            loss from the business activity to which it relates.  Id.                                     
                  In making the determination of the amount of gross income                               
            derived from the use of petitioner's home office during 1990,                                 
            respondent took into account only the amount of gross income that                             
            petitioner reported on his Schedule C.  Because petitioner's sole                             
            proprietorship incurred a net loss during the year at issue,                                  
            respondent disallowed the deductions for expenses attributable to                             
            the home office in their entirety.  Petitioner contends that his                              
            interest income should be considered gross income for purposes of                             
            section 280A(c)(5) because the interest income is used to finance                             
            his business activities.  Petitioner further contends that King                               
            International is entitled to the same treatment afforded to a                                 
            corporation with respect to the deductibility of office expenses                              
            and the classification of interest income.  Petitioner presented                              
            no evidence or authority to support his contentions.                                          
                  Petitioner reported his interest on the Form 1040 of his                                
            1990 return as personal interest income, not on his Schedule C as                             
            business income.  The fact that such income was used to finance                               

Page:  Previous  1  2  3  4  5  6  7  8  Next

Last modified: May 25, 2011