Alaskan REI/Lawyer Owes $96,812 in Taxes and Penalties

[Paul Allen]

http://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=11197

Synopsis:

An Alaskan lawyer (and a partner) purchased a property in Indiana in 2007 and operated it as a B&B until Jan 2010. Sold property in 2011, but took business expenses on 2010 and 2011 tax returns.

Stayed at the property 26 nights in 2010 and 33 nights in 2011. Claimed the stays were necessary to conduct repairs and maintenance on the property, but had no documentation or other evidence to support this claim. Tax Court rules the lawyer did not prove he stayed at the property for business purposes, rules the property was "personal use property" in 2010 and 2011, and disallows all business-related expenses for the property on his tax returns for 2010 and 2011. He owes $42,606 in taxes for 2010 and $38,157 in taxes for 2011 - PLUS a 20% accuracy-related penalty for both years.

BOTTOM LINE: The fine tax pros visiting this forum frequently exhort the members/REIs here to keep good records. They aren't just blowing smoke - there can be very real consequences for not doing so.