No Deduction Allowed for an RV Used Two-Thirds of the Time for Business Dellward and Judith Jackson owned Dell Jackson Insurance Services in Copperopolis, California. In 2004, Mr. and Mrs. Jackson began selling RV insurance. When they learned of RV specific insurance policies, they decided they could market these policies at weekend RV rallies. Mr. and Mrs. Jackson would gather sales leads at every rally. They attached a banner to their RV advertising Dell Jackson Insurance and set up an information table outside their RV promoting their RV insurance. When the Jacksons returned to the office after the weekend, they would use information from potential clients to generate rate quotes and then take the quotes, policies, and other data to the next rally. Large depreciation deductions claimed. During the 2006 tax year, Mr. and Mrs. Jackson deducted $47,461 as depreciation expense for their 2004 Winnebago. In 2007, the taxpayers purchased a new Winnebago for $248,456 and deducted $60,424 of depreciation expense on their 2007 Schedule C. They reported business use of 100% use for 2006 and 99.95% for 2007. Note: The IRS claimed that the RV was “opulent and extravagant.” Records showed RV had business purpose and two-thirds business use. Mr. and Mrs. Jackson provided a calendar of the 2007 trips on which they recorded 15 trips in that year. They also provided a log that described in more detail their meetings with specific clients and potential clients. The total gross receipts directly attributable to the taxpayers’ RV rally contacts were $14,882 and $19,446 for the 2006 and 2007 tax years, respectively. The court agreed that the taxpayers actively sold insurance policies at the rallies. Thus, the taxpayers had a substantial business purpose in purchasing the RV and spent at least two-thirds of their time on their insurance business while attending the rallies. But is two-thirds business use good enough for a depreciation deduction on an RV? Always selling: One of Mr. Jackson’s clients even described Mr. Jackson as having the reputation of being “a pest about insurance.” Does §280A apply to an RV? Section 280A(a) and (b) provide the general rule that individual and S corporation taxpayers cannot deduct expenses for “the use of a dwelling unit which is used by the taxpayer during the taxable year as a residence . . .” The RV is a dwelling unit if it is used for personal purposes for more than 14 days. A “taxpayer shall be deemed to have used a dwelling unit for personal purposes for a day if, for any part of such day, the unit is used * * * for personal purposes by the taxpayer” (§280A(d)(2)). Any personal use, including watching TV in the RV, makes the entire day a personal day. Mr. and Mrs. Jackson therefore used the RV as a dwelling unit for personal purposes for more than 14 days. §280A requires exclusive use. Section 280A(c)(1)(B) requires that a portion of the dwelling unit be “exclusively used” on a regular basis “as a place of business which is used by patients, clients, or customers in meeting or dealing with the taxpayer in the normal course of his trade or business.” Mr. and Mrs. Jackson did not use any portion of their RV exclusively for business. Genuine business purpose not good enough for a deduction. The tax court judge wrote: “Section 280A casts a wide net . . . and sometimes catches taxpayers, like [Mr. and Mrs. Jackson], who in addition to their personal use had genuine business purposes.” Thus, while Mr. and Mrs. Jackson’s RV may be “appropriate and helpful” in their business, they did not meet the stringent requirements of §280A. Read the case: Dellward R. Jackson and Judith N. Jackson v. Comm.,T.C. Memo 2014 160
Posted on: Wed, 15 Oct 2014 15:47:32 +0000
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