Revenue Rulings on Home Based Business Deductions
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This paper explores an Internal Revenue Service official bulletin issued to an individual taxpayer that explores home-based business deductions. Internal Revenue Bulletin 2004-12 was issued on March 22, 2004 and contained Revenue Ruling 2004-32, "Frivolous tax returns; Meritless home-based business deductions." This Revenue Ruling can be found at the URL http://www.irs.gov/irb/2004-12_IRB/ar08.html
This revenue ruling addresses "personal, living, and family expenses" inappropriately claimed as business expenses, thereby reducing taxable income and corresponding taxes, when a bona fide business does not exist. It discusses the following I.R.C. code sections addressing the deduction of various expenses:
162 - deductions for trade or business
163 - interest deductions for mortgage and home equity loans
213 - medical expense deductions
262 - disallowance of deduction of personal expenses
280 allowable business deductions in connection with residence
This ruling was prompted by the activities of promoters selling "Tax Toolboxes" or kits containing information and materials telling purchasers how to establish a home-based business to shield taxable income, reducing income taxes by offsetting non-business expenses against taxable income...