Tim’s Tax News on the Tenth – March 2023

On February 21, 2023, the U.S. Tax Court issued an opinion denying Petitioner, James William Avery’s claim for $355,000.00 in advertising expenses for tax years 2008-2013 inclusive. The Tax Court sustained the IRS’s denial of $303,366 of Avery’s claimed advertising expenses for his law practice for those six years.

Avery started his law career in Denver in 1982. He became a successful personal injury attorney in Colorado, where he stayed until marrying in 2003 and then moving to his wife’s state of Indiana. The marriage ended in 2010 and for the period from Avery’s arrival in Indiana to his return to Colorado in late 2010, his law practice was scaled down to open matters in Denver. In Indiana, Avery became a car enthusiast that then in about 2008 morphed into a car racer, to which he devoted his time and energy in the Midwest and East Coast until he moved back to Denver and garaged his Dodge Viper. Avery placed a sticker over the driver’s window, passenger window, and tail of the car and then claimed advertising expenses for his law practice as follows: 2008-$50,000.00, 2009-$50,000.00, 2010-$60,000.00, 2011-$60,000.00, 2012-$65,000.00and in 2013-$70,000.00.



The IRS did not agree with Avery’s claim for $355,000.00 in advertising expenses for tax years 2008-2013 and the IRS issued Notices of Deficiency against Avery. Avery was able to document $66,366.00 of expenses. From that number, the IRS disallowed $14,732.00 leaving $51,634.00 as allowed advertising expense. Avery took the denial of $303,366.00 of expenses to Tax Court.

The U.S. Tax Court found that Avery failed to introduce sufficient evidence that connected the racing to his law practice and therefore the related expenses were not ordinary and necessary for Avery’s law practice. The Court went on to say “[i]t is neither “necessary” nor “common” for attorneys to incur such costs. Petitioner greatly enjoyed car racing, which he found more exciting than his previous hobby of acquiring collector cars and participating in car shows. But we find that both activities were hobbies. No deduction is allowed for personal expenses of this kind.”

If you would like more details, please do not hesitate to call our office. Our office has been successful in helping taxpayers with IRS and IDOR collection problems for over 30 years. If you have a tax or debt problem, please contact me at 847-705-9698 or thughes@lavellelaw.com and find out how we can help you.

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