Tax Court In Brief | Kellett v. Commissioner | Start-Up, Research Expenses, And Other Itemized Business Deductions

Published date20 June 2022
Subject MatterCorporate/Commercial Law, Tax, Corporate and Company Law, Tax Authorities
Law FirmFreeman Law
AuthorFreeman Law

The Tax Court in Brief - June 13th - June 17th, 2022

Freeman Law's "The Tax Court in Brief" covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

For a link to our podcast covering the Tax Court in Brief, downloadhere or check out other episodes of The Freeman Law Project.

Tax Litigation: The Week of June 13th, 2022, through June 17th, 2022

  • Phillips v. Comm'r, T.C. Memo. 2022-58 | June 13, 2022 | Lauber, J. | Dkt. No. 18553-21L
  • Hatfield v. Comm'r, T.C. Memo 2022-59 | June 13, 2022 | Lauber, J. | Dkt. Nos. 7327-20, 1500-21
  • Romana v. Commissioner, T.C. Summary Opinion 2022-9 | June 16, 2022 | Carluzzo, J.| Dkt. No. 1156-21S
  • Howland v. Commissioner, T.C. Memo 2022-60 | June 13, 2022 | Weiler, J.| Dkt. No 17526-19
  • Chavis v. Comm'r, 158 T.C. No. 8 | June 15, 2022 | Lauber, J. | Dkt. No. 11835-20L

Kellett v. Comm'r, T.C. Memo 2022-62 | June 14, 2022 | Greaves, J. | Dkt. No. 21518-18


Short Summary: The IRS disallowed a $25,922 business expense deduction resulting in a corresponding deficiency of $6,475 in 2015. The taxpayer ran a business information website which started upon the opening of the website in September 2015. The business compiled demographic, social, and economic data and attempted to make a user-friendly version of Google or Yahoo Finance. He worked with engineers to develop features that he wanted on the website and hired a marketing specialist. Initially, he envisioned the business would generate revenue from advertising, a paywall, selling personalized reports, and/or licensing fees for use of data. He did not pursue these strategies in 2015 and did generate revenues until 2019. On his timely filed 1040, the taxpayer claimed expense deductions for the engineers, a marketing strategist, cell and internet service cost from his home, and some miscellaneous expenses. The IRS denied all deductions on the grounds that the business had not started.

Key Issues:

  • When does a business start for purposes of ' 195?
  • Can a taxpayer expense the costs of developing software under ' 174 before the business technically begins, or is he solely relegated to relief under ' 195?
  • Can a taxpayer use Rev. Proc. 2000-50 to deduct the costs of developing a website?

Primary Holdings:

  • The regulations do not provide a definition for this matter Therefore, the Tax Court will use any rule developed by the appropriate appeals jurisdiction. In this case, the taxpayer's business began in September of 2015...

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