Court Permits Deduction For Executive MBA. Taxpayers can deduct the cost of education that maintains or improves skills required in their current professions, but not those that qualify them for a new trade or business. The Internal Revenue Service disallowed deductions claimed by Alex Kopaigora for the Executive MBA program at Brigham Young University. Kopaigora commuted on weekends to the Provo, Utah, campus from Los Angeles, where he was a hotel accounting manager before losing his job partway through the program. The IRS claimed Kopaigora’s unemployment meant he could not qualify for the deductions, but the Tax Court disagreed. It also found that Kopaigora’s MBA was not a prerequisite for the new management job he obtained after completing the program. Alex Kopaigora and Elizabeth S. Kopaigora v. Commissioner, T.C. Summ. Op. 2016-35.
A New ‘Safe Harbor’ For Charitable Remainder Annuity Trusts. The Treasury Department has provided sample language that drafters can use to prevent a charitable remainder annuity trust (CRAT) from running afoul of a requirement that could disallow favorable tax treatment. CRATs pay fixed-dollar amounts to noncharitable beneficiaries for a period of time before transferring the remainder to charity. Administrators must apply a “probability of exhaustion” test to minimize the risk that the principal is eliminated before charities receive any money. However, the new language avoids the need to apply that test. The language requires the trust to terminate early and distribute remaining principal to charity if, at any point, the discounted current value of the remainder interest drops below 10 percent of the original principal. Rev. Proc. 2016-42.
No, You Can’t Deduct Your Aston Martin (Unless Your Name Is Bond). Gary Roy provided technical writing services to aerospace companies in the Los Angeles area through his company, eMedia, Inc. In 2012, Roy purchased an Aston Martin Vantage vehicle for about $75,000, going with the nameplate favored by movie hero James Bond. Roy claimed depreciation and other expense deductions for the car, asserting that he used it exclusively for business purposes. But neither the IRS nor the Tax Court was impressed with the records Roy provided to support his assertions, with the court adding that “we find it very unlikely that he did not use it for occasional personal excursions.” The deductions were denied and an accuracy-related penalty was imposed. Gary Frederick Roy v. Commissioner, T.C. Summary Op. 2016-77.