Howard Howe and Janice Howe - Page 4




                                        - 4 -                                         
                                                       Tax over-                      
                                   Tax payments        payment to be                  
                                   except              applied to the                 
          Tax       Tax            prior year’s        next year’s                    
          year      liability      overpayment         liability                      
          1987      -0-            4,184.40            4,184.40                       
          1988      5,820.83       5,820.83            4,184.40 not                   
                                                       applied                        
          1989      13,798.70      16,960.62           3,161.92                       
          1990      12,393.65      21,661.24           12,429.51                      
          1991      9,226.00       15,601.00           18,805.00                      
          1992      -0-            2,089.00            20,894.00                      
          1993      6,402.00       8,100.00            22,592.00                      
          1994      28,660.00      15,000.00           8,932.00                       
          1995      21,384.00      22,419.00           9,967.00                       
          1996      16,091.00      19,576.00           13,452.00                      
                                        OPINION                                       
          A.   Whether Petitioners May Deduct Rent for 1993 and 1994 That             
               Petitioner Prepaid in 1992                                             
               1.   Petitioners’ Contentions and Background                           
               Petitioners contend that petitioner prepaid $33,192.20 in rent         
          for 1993 and 1994 in 19921 to induce the landlord to give him a             
          below-market lease rate and to require no personal guaranty in the          
          next lease.                                                                 
               A cash method taxpayer generally may not deduct prepaid rent           
          in the year paid because it is not an ordinary and necessary                
          business expense for that year; instead, the taxpayer must deduct           
          prepaid rent ratably over the years in which the taxpayer uses the          

               1  Respondent contends that petitioner prepaid $38,118.                
          Petitioner’s monthly rent and maintenance for common areas was              
          $21,524.04 in 1992.  Subtracting $21,524.04 from petitioner’s               
          total payment of $54,716.24 in 1992 yields $33,192.20.                      
          Respondent has not explained how respondent determined that                 
          petitioner prepaid rent of $38,118.  We conclude that petitioner            
          prepaid $33,192.20 in rent in 1992.                                         





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