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MEMORANDUM
TO: Xron Corporation
FROM: Ben Crabtree
DATE: November 1, 2011
SUBJECT: Home Office Deduction

FACTS: Joe is a top executive at Xron Corporation and typically has to work 25 hours per week outside of the office to complete his weekly work load. The office remains open after 5 pm in the evenings and on the weekends, but the heating and air shut off after 5 pm and on the weekends. Joe will often work from home on evenings and weekends despite the fact that Xron does not require him to do so.
ISSUES: The main issue that arises is whether Joe can take a home office deduction due to the fact that he completes a portion of his weekly work responsibility from home. In order for Joe to qualify for the deduction, we must determine if his home is considered “a principal place of business” under Code Sec. 280A(c). If Joe meets these requirements, they he will be allowed the deduction.
CONCLUSION: Joe is not allowed to take a home office deduction because he does not meet the requirements of Code Sec. 280A(c) which outlines the “principal place of business” qualifications.
DISCUSSION: Code Sec. 280A(c) outlines many of the qualifications for the home office deduction. Code Sec. 280A(c)(1)(A) states that, “the taxpayer can claim a home office deduction if a part of the taxpayer's residence is used exclusively and on a regular basis as the principal place of any business of the taxpayer.” In Joe’s situation, this brings rise to the issue of whether or not his home is considered a principal place of business. The code goes on to further explain a home office will be considered a place of business if: 1) The office is essential to the taxpayer’s business
2) The taxpayer spends a substantial amount of time there;
3) There is no other location available for performance of the business’ office functions.
Based off of these qualifications, it would be difficult to argue that his home office would allow him to qualify for the deduction. It could be argued that Joe’s office is essential and that he spends a substantial amount of time there; however, given our limited information, that would still be a stretch. Also, in the 1993 Soliman case, the Supreme Court ruled that “the home office does not become the principal place of business by default if an analysis of relative importance of activities cannot be determined.” Joe’s case for the deduction blatantly falls short under Sec 280A(c)(1)(C) which states that there must be “no other fixed location of such trade or business where the taxpayer conducts substantial administrative or management activities of such trade or business.” Although Joe’s office might not be comfortable due to the lack of heating and air, it is open and available for him to use and therefore offers him an alternative work location other than his home. In addition, Joe has another fact against his case because he does not work at home for the convenience of his employer since Xron doesn’t require it.
SUMMARY: Code Sec. 280A(c); Code Sec. 280A(c)(1)(A); Sec 280A(c)(1)(C); [93-1 USTC ¶50,014] Commissioner of Internal Revenue, Petitioner v. Nader E. Soliman

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