It has been a while since I have had a client who worked for a car dealership, but I occasionally see questions from other preparers about SPIF’s (Sales Performance Incentive Fund). I was surprised by the amount of them in this Tax Court case, involving a salesperson at a Hyundai dealership. “Hyundai paid Mr. Monroe incentive payments totaling $38,862 and $23,860 during 2014 and 2015, respectively.”
But to sell as many cars as he did, the taxpayer incurred a lot of expenses. For example, “The various incentives included a free round of golf for two people, lunch, dinner, a $100 gift card, or tickets to a Kansas City Chiefs football game.”
So what did he do with the income and expenses? He put them on a Schedule C. IRS audited the returns and disagreed, taking the position that they were just “other income” and employee business expenses on Schedule A, after the 2% limit.
The Tax Court agreed with IRS, and then disallowed many of the expenses for lack of substantiation. But IRS also wanted a 20% negligence penalty. Judge Copeland didn’t allow it, because “the Monroes were not unreasonable in claiming those amounts as Schedule C deductions in that the judiciary has never spoken on the proper characterization of those items in the setting herein.”
The decision also has a description of the taxpayer’s use of a smartphone app to track his mileage (which was allowed). You can read all 20 pages at:
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