Paul L. Caron
Dean





Tuesday, September 14, 2010

More on the Tax Treatment of Professors' Research Expenses

Following up on yesterday's post, Tax Court Denies Prof's Claimed Deductions for Research: Stephen Bainbridge (UCLA) asks So Why Are My Scholarly Book Royalties Reported on Schedule C?:

Since writing treatises and case books thus is part of my "services as an employee," why does my tax preparer insist on reporting the royalties from those items on Schedule C? I would argue that I can't distinguish my "research and writing activity from [my] activity as college professor." Ergo, it's not a separate trade, and I shouldn't have to report the royalties on Schedule C.

The IRS wants to get us academic types coming and going. They want us to report our writing royalties on C but deny us deductions in connection therewith. Unfair and uncool.

Of course, the separate trade or business treatment of the book royalties frees the various associated expenses (computer, home office, etc.) from the limitations that would apply if the expenses were treated as employee business expenses, including the restrictions in § 67§ 280A, and § 280G, and also affords various retirement plan sheltering opportunities. However, as Christopher Hoyt (UMKC) notes, the IRS treats royalties from writing books (Rev. Rul. 68-498), but not royalties from licensing a patent (Rev. Rul. 68-499), as subject to social security taxes.

https://taxprof.typepad.com/taxprof_blog/2010/09/more-on--1.html

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Comments

Keep in mind that the IRS did not disallow the deductions because of a theoretical problem, but rather due to failure to adequately document the deductions:

"Petitioner's testimony is reasonable; however, he has failed to provide the Court with any adequate records or sufficient evidence to corroborate his own testimony."
(Taken from the previous post, citing the opinion, at: http://taxprof.typepad.com/taxprof_blog/2010/09/tax-court-.html)

Posted by: JGiven | Sep 14, 2010 12:49:18 PM