- 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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Last modified: May 25, 2011