Paul L. Caron
Dean




Friday, August 12, 2022

Blue J: Accurate Financial Recordkeeping And Business Deductions

Benjamin Alarie (Osler Chair in Business Law, University of Toronto; CEO, Blue J Legal) & Kathrin Gardhouse (Legal Research Associate, Blue J Legal), Situational Awareness: Accurate Financial Recordkeeping and Business Deductions, 176 Tax Notes Fed. 713 (Aug. 1, 2022):

Tax Notes Federal (2022)In this article, Alarie and Gardhouse explore the Tax Court decision in Skolnick [v. CommissionerT.C. Memo. 2021-139 (Dec. 16, 2021)], which emphasizes the importance of keeping accurate financial records for activities that may be subject to IRS scrutiny regarding their business nature.

Conclusion
The Tax Court decision in Skolnick emphasizes the importance of keeping accurate financial records of activities that may be subject to IRS scrutiny regarding their business nature. Whether this is the case can be most easily determined with a machine-learning tool such as Blue J’s section 162 trade or business predictor.

This tool also allows practitioners at the planning stage to play around with the factors, assess the risks of setting up an activity in one way or another, and then adjust their arrangements until the desired outcome can be achieved with a degree of confidence that the client is comfortable with. As takeaways from our analysis, consider that for financial records to be considered accurate and complete, (1) ownership interests should be clearly documented, as well as any changes thereto; (2) there should be documentation on the nature of capital contributions; and (3) taxpayers should document any efforts they are relying on to establish their use of records to make changes in their business practice to enhance profitability.

Prior TaxProf Blog coverage:

https://taxprof.typepad.com/taxprof_blog/2022/08/blue-j-accurate-financial-recordkeeping-and-business-deductions.html

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