Tax Court Reversal on Home Office Deductions

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TAX COURT REVERSAL ON HOME OFFICE DEDUCTION

Internal Revenue Code section 280A(c)(1)(A) provides an exception to the general rule that expenses incurred in connection with the use of a taxpayer's residence are not deductible. The exception permits the deduction of home office expense if a portion of the home is "exclusively used on a regular basis" as the principal place of business for any trade or business of the taxpayer.

Previously, the Tax Court had taken a hard line on what constituted a taxpayer's principal place of business. The court's opinion had been that the "focal point" of a taxpayer's business--and therefore his principal place of business--is the location where goods and services are provided to customers and revenues are generated. Unless customers regularly visited the home office or sales were made from the office, the focal point test disallowed any deductions in connection with the office.

But in Soliman v. Commissioner (94 T.C. no. 3, 1/18/90) the court declared the "focal point" test not binding in cases in which a home office is essential to a taxpayer's business, the taxpayer spends substantial time at the home office and the taxpayer has no other office location. Instead, the court held that all of the facts and circumstances of the case should be examined. (Six of the 17 judges dissented in the opinion.)

Soliman was an anesthesiologist who practiced in three local hospitals. …