12 of the Most Foolish Tax Write-Offs Ever Attempted
We’re often told that necessity is the mother of invention. And sure enough, few things have given birth to more invention than the desire to avoid paying income taxes. As we revealed in our article on the tax gap, each year there is a roughly $300M difference between what the IRS expects to collect and what it actually comes in—most of which is a result of taxpayers’ under-reporting their taxable income. “Under-reporting,” TurboTax found, refers to a slew of illegal behaviors including improperly taken deductions, overstated business expenses and erroneously claimed tax credits. To be sure, much of this 80% in any given year is ordinary, brazen tax fraud. But strewn amidst the annual deluge of shady tax schemes are some truly asinine write-off attempts worthy of mention. Below, TurboTax names twelve of the most ridiculous income tax write-offs ever spotted on tax returns.
In February 2010, Paul L. Caron of TaxProfBlog shared a ridiculous write-off for the ages: an attempt at deducting the cost of donating sperm as a medical expense. Back in 2008, Manhattan resident William Magdalin cleverly tried to squeeze through a legal loophole that allows the deduction of sperm donation costs. Unfortunately for Megdalin, the First Circuit court of appeals upheld an earlier decision by the Tax Court to strike down his scheme. The court decision reads, in pertinent part:
“The various expenses incurred by petitioner [Magdalin] were not for the treatment of any underlying medical condition suffered by the taxpayer; as noted, he stipulated that he was not infertile and that his previous children had been produced by natural processes in conjunction with the woman who was his wife at the time. In addition, the procedures were not for the purpose of affecting any structure or function of taxpayer’s own body.”
What foiled Magdalin’s plan, as the court explained above, is that his sperm donation did not serve any real medical purpose. Rather, it was quite obvious that the donation only took place to help Magdalin game the Internal Revenue Code.
Netherlands resident Margarita Rongen is proof that virtually anything can be written off with enough imagination. In an article on bizarre tax breaks from around the world, Mint introduced readers to Rongen, the “tax-certified witch” who successfully wrote off the costs of such training as “healing with herbs and stones, making potions, divination and fortune telling with crystal balls and hieroglyphs” as qualified education expenses in 2005. The UK’s DailyMail elaborated further on what Rongen’s tax-exempt “schooling” entailed, including courses “held 13 weekends a year closest to a full moon when outdoor rituals are practiced and potions boiled.” During this intense training period, DailyMail continues, aspiring students got the opportunity to “draw upon inner spiritual strength and tap natural energy from trees and plants” under the tutelage of experienced witches. Somehow, we gather this isn’t quite what President Obama had in mind by expanding tax relief to college students.
Giveaways are common sales tactics, and it may seem ordinary that a business owner would try deducting the costs of running them. But perhaps no giveaway was as destined for IRS scrutiny as free beer, which a gas station owner reportedly offered up to his customers instead of trading stamps. Amazingly, Kiplingers reports, the alcoholic deduction withstood legal challenges. While the unorthodox giveaway drew the attention of the Tax Court, the deduction was ultimately found to be permissible under the Internal Revenue Code as a legitimate and defensible business expense. The unexpected Tax Court decision prompted Kiplingers to quip that apparently “alcohol and gasoline do mix — for tax purposes.”
If you’re shaking your head in disbelief that anyone could even consider trying to write off the costs of setting a fire, you aren’t alone. But as LegalZoom explains, desperate times really do call for desperate measures. As the story goes, a Pittsburgh furniture store owner hired an arsonist to burn his building down after trying and failing to sell the business. Astonishingly, he might have gotten away with it if not for what he included on that year’s income tax return. The disgruntled shopkeeper received (and reported on his tax return) a $500,000 payment from his insurance company, but in an act of colossal stupidity, he also “wrote off the $10,000 “consulting fee” he paid the arsonist.” Once the IRS caught on, the shopkeeper got slapped with over $6,000 in fines and both he and the arsonist got shipped off to prison for insurance fraud.
Hard as it is to imagine, bribery was once a legally sanctioned, tax-deductible activity in Germany. An August 1995 article in BusinessWeek declared that the since-repealed deduction “flies in the face of its [Germany's] international reputation for law and order” and set the stage for legalized corruption – a perverse contradiction – between business and government officials. While not as many people as you might expect actually used the deduction (because both the source and recipient of the bribe had to identify themselves) the controversial write-off received a steady barrage of criticism. BusinessWeek explained, for instance, that journalists eventually came to “think nothing of accepting air tickets and hotel rooms from the companies they [were] covering.” Eventually, German politicians could defend their bribery write-off no longer and opted to repeal it.
Building a fallout shelter would get you labeled a conspiracy nut today, but it was quite appropriate during the Cold War. Yet it still escapes us why anyone thought they could write off the expense of doing so. As WiseBread explains, one especially risk-averse man built a full-fledged, underground nuclear fallout shelter in his backyard during the US-Soviet arms race. But when tax time rolled around, it became clear that mushroom clouds weren’t the only thing this man was trying to shield himself from. His income tax return for that year brazenly tried to deduct the costs of building the shelter as a “preventative medicine expense.” We’ll give him points for thinking outside the box, but the IRS immediately put the kibosh on the attempted write-off.
Australia took the decidedly unusual step in 2006 of allowing prostitutes, strippers and other members of “the sex industry” to deduct the cost of buying sex toys. According to MSN, deduction privileges were extended to a wider range of sex-related items than just the toys pictured above, including but not limited to “condoms, lubricants, gels and oils.” That said, Australia made sure to stop short of going too far with its strange new deduction allowances. While Australian officials saw nothing wrong with strippers deducting explicit sex toys, they evidently could not stomach the thought of dancers writing off the exercise bikes or elliptical machines that kept them in peak performing shape. Go figure.
Most would be hard-pressed to envision a scenario where taking clarinet lessons accelerated the healing of a medical problem. But the Houston Chronicle tells the unlikely story of how playing the clarinet demonstrably lessens the pain of overbite, an agonizing tooth defect involving “vertical overlap of the maxillary central incisors over the mandibular central incisors” according to Wikipedia. And so, absurd as it sounds on its face, parents have been permitted to write off the costs of clarinet lessons as a legitimate medical expense. The reason these parents get away with their deductions while other people failed to deduct sperm donations or bomb shelters, the Chronicle explains, is because legally deductible medical expenses “involve diagnosis, cure, treatment or prevention of a disease or health condition for you, a spouse or a dependent.” Illogical as it sounds, clarinets do meet that criteria while the other write-offs never came close.
Few things epitomize the idea of a ridiculous income tax write-off more than breast implants. But as Biznik explains, Cynthia Hess (better known by her stage alias of “Chesty Love”) defended her deduction all the way to the United States Tax Court and prevailed. When all was said and done, the court had little choice but to concede that since Hess earned her living by stripping, breast implants did satisfy the Internal Revenue Code requirement that business expenses be “ordinary and necessary” for one’s line of work. Hess’ lawyers (in what must have been a comical proceeding) persuaded the Tax Court that the implants were not merely cosmetic. In fact, they argued, she was tangibly losing income as a result of not having size 56-FF breasts like other dancers. And no, Biznik clarifies: 56-FF is not a typographical error. Furthermore, Biznik concludes, the dancer “immediately experienced an uplift in earnings” after returning to the stage in her newly “enhanced” state.
Navajo healing ceremonies
Far be it from us to judge anyone’s beliefs, but most of us were shocked to hear that Navajo healing ceremonies can be lawfully deducted from income taxes. Navajo healing ceremonies, for those unaware, attempt to eradicate pain and curses using various chants and songs. The Houston Chronicle reported in January 2007 that the cost of holding or participating in such ceremonies are tax-deductible provided that “it was prescribed for a medical purpose or to alleviate a condition”, says tax attorney Donna LeValley. Nor are Navajo healing ceremonies the only “alternative” treatment options that potentially qualify as tax write-offs, as electric shock, whirlpool baths and hydrotherapy have all been lawfully deducted in the past.
Cat food isn’t inherently crazy, but the way one couple spun it into a tax deductible business expense is ingenious. Kiplingers tells the story of a junkyard-owning husband and wife who routinely sprinkled cat food around the premises to tempt stray cats into hanging around. Their reason? The cats “took care of snakes and rats on the property, making the place safer for customers.” Naturally, this attempted deduction did not pass unchallenged. But when the couple eventually reached the Tax Court, they made an airtight case that the cat food had been instrumental to keeping dangerous rodents away from their life-sustaining business. Ultimately, the IRS attorneys dispatched to try the case allowed the deduction to stand.
Businesses are used to depreciating standard equipment like computers, truck fleets and buildings. But imagine how fast jaws dropped at IRS headquarters when an ostrich farmer from St. Tammany Parish, Louisiana submitted a tax return that wrote off the depreciated value of his ostrich. Odd as it may sound, LegalZoom confirms that farmers are indeed allowed by the Internal Revenue Code to depreciate the value of their livestock provided they are being used for breeding (rather than producing food products for sale.)