Actress-Writer’s Business Deductions Hamstrung By Poor Recordkeeping

Criminal Minds on Set Some taxpayers incur problems by attempting to deduct expenses clearly outside what the tax code permits. In other cases, however, the flaw is not necessarily with the expenses claimed, but with the recordkeeping the taxpayer maintained in support of her claimed deductible expenses. Such was the case for Morgain McGovern, whose documentation mess ultimately helped lead the US Tax Court to throw out all of her deductions she claimed in excess of the $5,700 standard deduction.

McGovern ran into trouble for her 2009 tax return, during which time she worked as an author and as a “stand-in” for the character of Penelope Garcia on the primetime drama “Criminal Minds.” The taxpayer claimed itemized employee business deductions totaling more than $19,200, which probably seemed remarkably high to the IRS in comparison to her 2009 wages of $24,900. The IRS ultimately discarded all of McGovern’s itemized deductions and declared a deficiency of $1,823.

The Tax Court agreed with the IRS. The taxpayer’s case suffered from several problems from which other taxpayers can learn. The taxpayer claimed more than $9,200 in vehicle expenses, $1,500 in travel, $2,100 for a cell phone and $700 for meals and expenses. Yet, she maintained no records about any of these expenses that would indicate the time, place or business purpose of the expense. The court also critiqued McGovern for failing to separate the expenses she racked up in pursuit of her writing business and those related to her acting business. The actress also claimed expenses for clothes and makeup she purchased for her acting job, citing the Garcia character’s unusual fashion in clothes and makeup. While fans of “Criminal Minds” may likely agree with that assessment, McGovern’s shortcoming laid not in asserting Garcia’s uniqueness, but her failure to tie her purchases to her job on the TV show, according to the court.

Another lesson for taxpayers is to avoid making the job of the Tax Court (or the IRS) needlessly difficult. While clear records may not necessarily produce a favorable result, a jumbled mess will almost always harm your position. The court noted that it delayed McGovern’s trial to allow her to obtain documents supporting her deductions. Many of the hundreds of records she eventually produced were a disorganized mixture of items reimbursed by her employer, irrelevant personal expenses and expenses incurred outside 2009. The taxpayer’s extreme disorganization was a decided hindrance to her case, according to the court. “Neither the IRS nor the Court can reasonably be expected to comb through disorganized records and guess which relate to the deductions claimed on [McGovern]’s tax return.”

Facing an audit can be a stressful, intimidating and time-consuming process. Of course, the best remedy for an audit is to do everything possible to avoid one. To make sure that your tax returns are fully compliant with the tax code and regulations, and that you and your return are best prepared should an audit occur, get in touch with the experienced tax attorneys at Samuel C. Berger, P.C. and CPAs at S.C. Berger, P.C. They have the skill and experience to guide you through entire process of claiming all deductions to which you are entitled. To consult our attorneys and CPAs, contact us online or call (201) 587-1500 or (212) 380-8117.

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