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Example 1 concludes that Miranda cannot deduct her annual CPA license fee because her mother paid it for her. Correspondingly, Example 2 concludes that Marty’s mother cannot deduct her annual property taxes since Marty paid them for her.
Are these two examples consistent with the Tax Court’s reasoning in Lang? Why or why not?
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Example1
Miranda is a public accountant and is required by state law to have a license to practice public accounting. When the state license renewal fee comes due, Miranda is short of money and cannot renew her license. Miranda’s mother pays the license renewal fee for her so she can continue working as a public accountant. Can Miranda deduct the fee as a business expense?
Discussion: The license renewal fee is Miranda’s business expense, and only she can deduct the payment of the fee. Because Miranda does not pay the license renewal fee, she is not allowed a deduction for the business expense. Because the license renewal fee is not Miranda’s mother’s expense, her mother cannot deduct the payment of the expense. Based on these facts, neither Miranda nor her mother can deduct the payment of the license renewal fee.
Note that the bad tax result here can be avoided if Miranda’s mother either gifts or makes a valid loan to Miranda of the money necessary to pay the licensing fee and Miranda makes the payment from her own funds.
Example:2
The accounting firm of Williams, Daniels, and Thomas contributes $100 to a political campaign fund. The objective of the group managing the fund is to defeat a senator who has proposed legislation unfavorable to CPAs and to support candidates who favor CPAs’ positions. Can the firm deduct the $100 payment?
Discussion: The firm’s political contribution is not allowed as a deduction because the fund supports the election of a candidate and attempts to influence public opinion concerning the suitability of the senator to hold office.)
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