A married couple was not entitled to a tax refund based on a depreciation deduction for a private jet. The Court found the taxpayers’ amended return failed to state the correct legal basis for the claim and did not meet the requirements for a business expense deduction.
The couple jointly owned an LLC that purchased an interest in a private jet. On their amended return, the taxpayers claimed substantial sums in bonus and regular depreciation on a Schedule C. The IRS disallowed the deduction. The Court held that the LLC was not a trade or business operated for profit and thus could not support a deduction under Code Sec. 162 or Code Sec. 167. The LLC had no revenue, paid no wages, and did not serve third parties. Accordingly, the Schedule C loss was not allowable.
The couple also claimed the deduction was allowable as an un-reimbursed partnership expense on Schedule E. The Court disagreed, citing the variance doctrine, as the original claim lacked written notice or substantiation under Reg. §301.6402-2(b)(1). Because the IRS lacked a fair chance to review the alternative theory during audit, the Court lacked jurisdiction to consider it.
S.L. Shleifer, DC Fla.
