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OPINION
The rent deduction claimed on petitioner's return is
attributable to the lease and takes into account: (1) The
security deposit; (2) rent for the first month; and (3) the lease
cancellation fee. The balance of the deduction ($6,000) has not
been identified. The controversy between the parties focuses on
whether petitioner is entitled to include the lease cancellation
fee in the rent deduction.
Although the lease cancellation fee was paid with a
cashier's check purchased by Mr. Finley, petitioner considers
that the payment was made by her. According to petitioner, she,
in effect, borrowed the funds from Mr. Finley and repaid him over
a period of time. Petitioner contends that the deduction is
allowable under section 162,1 which, in general, allows a
taxpayer to deduct "all the ordinary and necessary expenses paid
or incurred during the taxable year in carrying on any trade or
business."
Respondent argues that petitioner is not entitled to a
deduction for the lease cancellation fee because the fee was not
paid by her. According to respondent, the fee was paid by Mr.
Finley as the guarantor on the lease. Respondent further argues
that the fee, even if paid by petitioner, was an expense of
1Section references are to the Internal Revenue Code of
1986, as amended and in effect for the year 1995. Rule
references are to the Tax Court Rules of Practice and Procedure.
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Last modified: May 25, 2011