Paul L. Caron

Wednesday, March 14, 2007

WaPo on Stamoulis v. Commissioner

Interesting story in today's Washington Post on the Tax Court's decision last week in Stamoulis v. Commissioner, T.C. Summ. Op. 2007-38 (3/8/07), holding that an investment banker with Goldman Sachs in New York City who earned $115,000 could not deduct $55,000 in claimed charitable contributions for used clothing donated to a thrift store:  Unmerited Designs on a Tax Deduction, by Ylan Q. Mui:

Ronny Buni, Stamoulis's attorney, said Stamoulis donated more than 100 items to the thrift store that year, which the court did not dispute. "The only question was what was the value," Buni said in a telephone interview this week. "I don't think the court was very familiar with couture clothing. I think the court found it very hard to believe that they could be worth that much after they had been used." Buni would not give examples of the items Stamoulis donated but described them as "designer." Stamoulis did not return a reporter's phone call to her home.

In his opinion, Carluzzo acknowledged that determining the resale value of couture clothing was "at best, an inexact science." At Alex Boutique, Jones said a top consignor can donate more than 200 items a year, with a total resale value of about $85,000 -- less than two-thirds of the original cost of the clothes. But Inga Guen, owner of the high-end District consignment shop Inga's Once Is Not Enough, said items typically resell for about 20 percent of the original price. The shop keeps 10 percent, and the remainder goes to the consignor. Items that do not sell may be donated to charities, which then qualifies the original owner for a tax deduction. "You must understand everything depreciates," Guen said. "Housing, cars and mostly clothing." ...

Paul L. Caron, a law professor at the University of Cincinnati who wrote about the case on his TaxProf Blog, said he thought the judge was lenient. "I think he was sort of taken with her, for whatever reason," Caron said. "Typically in these kinds of cases, the taxpayer doesn't get any of these kinds of deductions. The burden of proof is on the taxpayer."

Prior TaxProf Blog coverage:

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This reminds me of an experience when I was an undergraduate student working on getting an accounting degree. Hungry for money, I would take care of basic bookkeeping for individuals conducting small businesses. I would take their shoeboxes full of receipts and invoices, and prepare ledgers summarizing their expenses. My clients would take the ledger sheets I prepared, and use them in filing their tax returns, or provide them to their return preparers for the same purpose.

One client was a lawyer who insisted that I bury his expenditures for expensive suits as some kind of "miscellaneous" business expense in the books. His reasoning was: "I have to look good in court, so this is a cost of doing business." Even as an undergraduate accounting student, and knowing that the gentleman wanted me to prepare books and records for tax purposes, I recognized there was a deductibility issue. And I told him so.

So he fired me. And never paid for the considerable bookkeeping services I performed before the difference of opinion arose. For some reason, reading the story about Ms. Stamoulis brings that deadbeat to mind.

Posted by: Jake | Mar 14, 2007 7:37:27 PM