Cell Phone Deductions Disallowed

United States Tax Court; Gaylord v. Commissioner, 2003

January 1, 2004

Because a taxpayer couldn’t substantiate that her cell phone service was used for business, a tax court has supported the Internal Revenue Service’s decision to disallow the cost of this service as a business expense.

The taxpayer, Ajuba Gaylord, worked soliciting business for a telecommunications company and was paid a percentage for every customer she signed up. When she filed her income taxes for 1999 and 2000, she deducted various office expenses, including office supplies, gifts to clients, and cell phone services, as business expenses. The IRS disallowed these deductions, and Gaylord appealed.

In finding for the IRS, the Tax Court focused on the requirements under Section 274(d) of the federal tax code. This section, which covers business deductions for travel, gifts, and a list of business property items including cell phones, imposes stringent requirements for claiming deductions on items that could be used for both personal and business reasons.

Under Section 274(d), a taxpayer must show the amount of the expenses, the time and place of the expenses, the business purpose of the expenses, and the business relationship of the taxpayer to the persons involved in the expense. Although Gaylord had cancelled checks showing that she had paid her cell phone bills, the court ruled that this evidence was insufficient to show that the calls were a business expense. The court didn’t specify what Gaylord should’ve done to prove her calls were business-related. NAR Legal Affairs suggests that paying bills from a separate business checking account might be one way to help prove that cell phone calls are business expenses.

Disabled tenant may have cosigner

U.S. Court of Appeals, Ninth Circuit; Giebeler v. M&B Associates, 2003

A federal appellate court has determined that the federal Fair Housing Amendments Act requires a landlord to accommodate a disabled housing applicant’s request even though it conflicted with company policy.

A tenant who suffered from AIDS and was unable to work applied for an apartment owned by M&B Associates. Although his current income was insufficient to qualify for the apartment, his mother offered to cosign.

The landlord rejected the applicant, citing the company’s policy that required applicants to have an income equal to three times the rental amount as well as a policy that prohibited the use of a cosigner. The tenant enlisted the help of a local AIDS clinic, which informed the landlord that it was in violation of fair housing laws that require reasonable accommodation for people with disabilities.

When the landlord refused to change its position, the prospective tenant sued. The trial court ruled against the tenant, but the Appellate Court reversed the trial court, finding that because his illness made it impossible for the prospective tenant to work, he was entitled to reasonable accommodation. The tenant’s request was reasonable, the court said, because he wasn’t asking to pay a lower rent nor seeking to change the obligations of tenancy.

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