Information Central

Unbelievable amount of information contained here. Includes IRS Code, Regulations and Court Cases as reference. This is one of the few spots on the entire internet that gives you this kind of information. The time referencing this alone could cost $100's of dollars. This is what people pay us for, our knowledge, which we gladly share with other tax professionals.

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Abandonment. A loss resulting from abandonment of business or investment property is deductible as an ordinary loss, even if the property is a capital asset. The amount of the loss is the property's adjusted basis at the time of abandonment. Citron v. Commissioner, 97 T.C. 200 (1991).

Abnormal retirement. A taxpayer may claim a loss deduction for the abnormal retirement or property used in a trade or business, which occurs when the asset is withdrawn earlier than the taxpayer customarily retires similar assets or under other circumstances such as when an asset is damaged by a casualty or suddenly lost its usefulness as the result of an extraordinary obsolescence. Reg. Section 1.167(a)-8.

Abortion. The cost of legal abortion is deductible as a medical expense. Rev. Rul. 73-201, 1973-1 C.B. 140.

Accident insurance. In the case of an insurance contract under which amounts are payable for other than medical care (such as a policy providing an indemnity for loss of income or for loss of life, limb, or sight), no amount shall be treated as paid for insurance covering expenses of medical care unless the charge for such insurance is separately stated, either in the contract or in a separate statement. Reg. Section 1.213-1(e)(4)(i).

Accidents. A car accident may result in a deductible casualty loss, unless the accident is caused by the willful negligence or willful neglect of the taxpayer or another person operating the taxpayer's car. Reg. Section 1.165-7(a)(3).

Accidental breakage. Accidentally breaking articles such as glassware or china under normal conditions does not give rise to a deductible casualty loss. Diggs v. Commissioner, T.C. Memo. 1959-99, aff'd, 281 F.2d 326 (2d Cir. 1960), cert. denied, 364 U.S. 908 (1960).

Accounting certificate fees. No deduction is allowed for professional accreditation fees such as accounting certificate fees paid for the initial right to practice accounting, bar exam fees, and medical and dental licensing fees paid to get initial licensing. Reg. Section 1.162-5(b).

Accounting fees. An individual taxpayer can deduct, as miscellaneous itemized deductions subject to the 2 percent floor, accounting fees that are paid or incurred for the production or collection of income; for the management, conservation, or maintenance of property held for the production of income; or in connection with the determination, collection, or refund of any tax. Code Section 212.

Acupuncture. The cost of acupuncture services may be deductible as a medical expense. Rev. Rul. 72-593, 1972-2 C.B. 180.

Administrative fees. Administrative fees paid to the trustee of a pension plan in which the taxpayer is a participant are deductible as investment expenses subject to the 2 percent floor on miscellaneous itemized deductions. TAM 9001002. Similarly, IRA administration fees in excess of the maximum amount deductible for IRA contributions are deductible as expenses for the production of income subject to the 2 percent floor on miscellaneous itemized deductions if they are billed and paid separately. Rev. Rul. 84-146, 1984-2 C.B. 61.

Admission – Charitable benefit event. If a taxpayer pays a qualified charitable organization more than the fair market value for the right to attend a charity ball, banquet, show, sporting event, or other benefit event, the taxpayer may deduct the amount paid above the fair market value of the privileges or other benefits received. Reg. Section 1.170A-1(h)(2).

Admission – Political event. No deduction is allowed for the cost of admission to any dinner or program, if any part of the proceeds of such event directly or indirectly inures to or for the use of a political party or a political candidate. Reg. Section 1.276-1(d).

Adoption expenses. Adoption expenses are non-deductible personal expenses. Although an adoption services agency may be a qualified charitable organization, amounts paid to the agency for services rendered by the agency to the payors are not deductible charitable contributions. Arceneaux v. Commissioner, T.C. Memo. 1977-363.

NOTE: An individual may be able to claim a tax credit for qualified adoption expenses or exclude from income amounts reimbursed by the individual's employer for qualifying adoption expenses under an adoption assistance program. Code Sections 23, 137.

Advertising display on car. Putting display material that advertises a business on the taxpayer's car does not change the use of the car from personal to business use; thus, personal uses of the car such as commuting still are non-deductible. IRS Pub. 463, Travel, Entertainment, Gift, and Car Expenses.

Advice on investments. Fees paid for counsel and advice about investments that produce taxable income, including investment advisory services, are deductible investment expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.212-1(g).

Affinity credit card. A taxpayer who uses a brand-name affinity credit card and can either receive rebates personally or donate them to charity can claim a charitable contribution deduction for the amount of the donated rebates only if the taxpayer makes an affirmative election to donate the rebates to charity. PLR 200228001.

Air cleaner. The cost of installing and operating an electronic air cleaner pursuant to a doctor's recommendation for the alleviation of an illness such as allergies, may constitute a deductible medical expense only to the extent that the cost exceeds the amount that would be required in the absence of the medical condition. Gardner v. Commissioner, T.C. Memo. 1983-541.

Air conditioning. An air-conditioning device that has been installed in the taxpayer's residence for the alleviation of an illness is deductible as a medical expense, as long as it is purchased only for the use of the sick person and does not become a permanent part of the dwelling. Reg. Section 1.213-1(e)(1)(iii). A permanent central air conditioning unit installed for medical reasons is deductible only to the extent that its cost exceeds the increase in value to the home. Gerard v. Commissioner, 37 T.C. 826 (1962).

Airplane crash. An airplane crash can cause a deductible personal casualty loss. Publication 225, Farmer's Tax Guide.

Airplane fares – Business travel. The costs of air, rail, and bus transportation incurred in a taxpayer's work may be deductible unreimbursed employee travel expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.162-2(a).

Airplane fares – Medical transportation. Transportation primarily for, and essential to, medical care may be deductible as a medical expense. Code Section 213(d)(1)(B).

Airport limousine. A taxpayer traveling away from home for business purposes may deduct as unreimbursed employee travel expenses subject to the 2 percent floor on miscellaneous itemized deductions the cost of traveling by taxi, commuter bus, airport limousine, or other transport services between the airport or station and the taxpayer's hotel. IRS Pub. 463, Travel, Entertainment, Gift, and Car Expenses.

Alcohol abuse treatment. The cost of treatment, including meals and lodging, at a therapeutic center for alcoholism is a medical expense. Rev. Rul. 73-325, 1973-2 C.B. 75.

Alcoholics Anonymous. Transportation costs paid to attend local meetings of an Alcoholics Anonymous club are deductible as medical expenses if the taxpayer's attendance is pursuant to medical advice that membership in Alcoholics Anonymous is necessary for the treatment of a disease involving the excessive use of alcohol. Rev. Rul. 63-273, 1963-2 C.B. 112.

Alimony. Attorney fees and other legal expenses incurred to collect taxable alimony are deductible subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.262-1(b)(7).

NOTE: Alimony or separate maintenance payments (payments made to or for a spouse or former spouse under a divorce or separation decree), may be deductible above the line. Code Section 215(a). This is true even if the payments are made to a foreign recipient who does not have to include the payments in income under a tax treaty. CCM 200251004.

American Depository Shares. American Depository Shares may qualify as qualified appreciated stock for purposes of the charitable contribution deduction. PLR 200322005.

Ambulance. The cost of ambulance hire essential to the receipt of medical services is deductible as a medical expense. Reg. Section 1.213-1(e)(1)(ii).

Amortizable premium on taxable bonds. If the amount paid for a bond is greater than its stated principal amount, the excess is an amortizable bond premium. Part of the premium on some bonds may be a miscellaneous itemized deduction not subject to the 2 percent limit. Code Section 67(b)(11).

Animals. The cost and care of guide dogs and other animals aiding the blind, deaf, and disabled are deductible as a medical expense. Reg. Section 1.213-1(e)(1)(iii) (seeing eye dog); Rev. Rul. 68-295, 1968-1 C.B. 92 (dog to assist deaf person); Rev. Rul. 55-261, 1955-1 C.B. 307 (seeing eye dog).

Annuity. If the cost of a taxpayer's annuity has not been fully recovered by the time of the taxpayer's (or survivor annuitant's) death, the unrecovered investment can be deducted on the taxpayer's final income tax return as a miscellaneous itemized deduction not subject to the 2 percent floor. Code Section 72(b)(3)(A).

Antifreeze. Damage to an automobile due to an absence or an insufficient amount of antifreeze in the automobile is a personal loss, rather than a deductible casualty loss because the event does not involve the application of a destructive force that is the proximate cause of the loss and does not embody the requisite element of chance, accident, or contingency. Mohiuddin v. Commissioner, T.C. Memo. 1996-422.

Antiques. A taxpayer who donates antiques to a qualified organization may claim a charitable contribution deduction for the fair market value of the antiques, provided that deductions in excess of $5,000 are supported by a written appraisal from a qualified and reputable source. Rev. Proc. 66-49, 1966-2 C.B. 1257.

Apartment rental. The cost of renting an apartment for the taxpayer's son, upon the advice of a psychiatrist that it would be therapeutic for him to have the responsibility of caring for himself, is not deductible as a medical expense. PLR 8651055.

Appraisal fees. Appraisal fees are deductible subject to the 2 percent floor on miscellaneous itemized deductions if paid to figure a casualty loss (Rev. Rul. 58-180, 1958-1 C.B. 153), or the fair market value of property donated to a charitable organization (Rev. Rul. 67-461, 1967-2 C.B. 125).

Appreciated stock. A taxpayer who makes a charitable contribution consisting of stock or other property that has increased in value may claim a deduction for the fair market value of the stock on the date of the donation, reduced by the amount of gain that would have been recognized if the property had been sold at its fair market value at the time of the contribution. Code Section 170(e)(1)(A).

Archeological dig. A taxpayer who works for several hours each morning on an archeological dig sponsored by a charitable organization, with the rest of the day free for recreation and sightseeing, cannot take a charitable contribution deduction, because no charitable contribution deduction for travel expenses incurred while away from home performing services for a charitable organization is permitted if there is a significant element of personal pleasure, recreation, or vacation in the travel or if the taxpayer's duties are nominal. IRS Pub. 526, Charitable Contributions.

Archer MSA. Although amounts distributed from an Archer MSA (formerly called a Medical Savings Account), and used exclusively to pay for qualified medical expenses of the account holder are not included in gross income, expenses paid with a tax-free MSA distribution are not deductible as medical expenses. Code Section 220(f)(6).

NOTE: A taxpayer who is self-employed or who works for a small employer and has a high deductible health plan can deduct contributions to an Archer MSA above the line in arriving at adjusted gross income. Code Section 220(a). Contributions by the taxpayer's employer are excludable from income. Code Section 106(b).

Architectural expenses. A taxpayer may elect to deduct up to $15,000 per year of architectural and transportation barrier removal expenses incurred for the purpose of making any facility or public transportation vehicle owned or leased by the taxpayer for use in his trade or business more accessible to and usable by handicapped and elderly individuals. Code Section 190(a).

NOTE: Alternatively, an eligible small business that pays or incurs expenses to provide access to persons with disabilities in order to comply with the Americans with Disabilities Act of 1990 may claim a tax credit for 50 percent of its eligible access expenditures for the year that exceed $250, but do not exceed $10,250. Code Section 44(a).

Artificial limbs. The cost of an artificial limb is deductible as a medical expense. Rev. Rul. 55-261, 1955-1 C.B. 307.

Artificial teeth. The cost of artificial teeth is a deductible medical expense. Reg. Section 1.213-1(e)(1)(ii).

Artwork - Donated by the artist. An artist who donates artwork he created to a qualified charity is only allowed a charitable contribution deduction for the cost to create the artwork, excluding the value of the artist's work. Code Section 1.170A-4(b).

Artwork - Donated by taxpayer other than its artist. A taxpayer who donates works of art to a qualified organization may claim a charitable contribution deduction for the fair market value of the artwork, if the doneeorganization uses the artwork in a way that is related to the purpose or function constituting the basis for its exemption. Code Section 170(e)(1). The contribution must be supported by a written appraisal from a qualified and reputable source unless the amount claimed is $5,000 or less. Reg. Section 1.170A-13(c)(1).

CAUTION: If the organization does not use the artwork in a way that is related to the purpose or function constituting the basis for its exemption, the donor may deduct only the fair market value of the artwork less any capital gain that would have been realized if the artwork had been sold at the time it was donated to the organization. Code 170(e)(1).

Assessment. An assessment for local benefits that increases the value of the taxpayer's property such as the construction of streets, sidewalks, or water and sewer systems, generally is not a deductible tax. Reg. Section 1.164-2(g). However, assessments for local benefits are deductible if they are for maintenance, repair, or interest charges related to those benefits such as a charge to repair an existing sidewalk and any interest included in that charge. Reg. Section 1.164-4(b)(1).

At-risk rules. Individual taxpayers generally are entitled to a loss deduction for an activity only to the extent they are "at risk" in the activity. Code Section 465(a).

Athletes - Travel expenses. In general, the tax home of athletes playing for a professional sports franchise is the home city of the franchise. Therefore, they can only deduct, as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions, expenses incurred while they are playing away from the franchise home city even though their personal residence may not be there.

TIP: If being a professional athlete is not an athlete’s only trade or business, he may be away from home during the entire season. In that case, all his travel and living expenses, not only those while away from their franchise's home city, are deductible. Rev. Rul. 54-147, 1954-1 C.B. 51.

Athletic clubs. No deduction is permitted for amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or other social purposes. Code Section 274(a)(3). Clubs organized for business, pleasure, or other social purposes include, but are not limited to, country clubs, golf and athletic clubs, airline clubs, hotel clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussion. Reg. Section 1.274-2(a)(2)(iii)(a).

Attorney fees - Collection or production of income. Attorney fees are deductible as miscellaneous itemized deductions subject to the 2 percent floor if incurred in attempting to produce or collect taxable income or in connection with the determination, collection, or refund of any tax. Reg. Section 1.212-1(l).

Attorney fees - Divorce and alimony. Although attorney fees relating to divorce generally are non-deductible personal expenses, the expenses of legal advice relating to the tax consequences of a divorce are deductible as miscellaneous itemized deductions subject to the 2 percent floor if the bill specifies how much is for tax advice and the determination of that amount is done in a reasonable way. Rev. Rul. 72-545, 1972-2 C.B. 179. Further, attorney fees are deductible as expenses for the production of income subject to the 2 percent floor on miscellaneous itemized deductions if they are paid or incurred to collect taxable alimony. Reg. Section 1.262-1(b)(7).

Attorney fees - Job related. Attorney fees are deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions if related to either doing or keeping the taxpayer's job such as expenses paid to defend against criminal charges arising out of the taxpayer's work. Caspers v. Commissioner, 44 T.C. 411 (1965).

Attorney fees - Mental incapacity. Attorney fees paid in committing the taxpayer's spouse to a mental institution are deductible as medical expenses where, in the absence of that commitment, the patient would not have been able to receive treatment. Gerstacker v. Commissioner, 414 F.2d 448 (6th Cir. 1969).

Attorney fees - Personal. Personal legal expenses are not deductible. United States v. Gilmore, 372 U.S. 39 (1963).

Automatic investment plan. A taxpayer may deduct as an expense for the production or collection of income subject to the 2 percent floor on miscellaneous itemized deductions the monthly service charge paid to a bank to participate in an automatic investment service plan. Under such a plan, the taxpayer instructs the bank to invest a portion of the funds on deposit in an account each month in the common stock of certain specified corporations. Rev. Rul. 75-548, 1975-2 C.B. 331.

Automobile. The fair market value of a car, boat, or aircraft donated to a qualified organization may be deducted as a charitable contribution. SCA 1998-022 (Dec. 4, 1997) (automobiles); Sergeant v. Commissioner, T.C. Memo 1998-265 (boats). The costs of shipping the taxpayer's car from his former home to a new home in a move connected with the start of work in a new location is deductible as a moving expense. Rev. Rul. 65-309, 1965-2 C.B. 77.

Automobile lease payments. A taxpayer can deduct the portion of automobile lease payments attributable to the use of the automobile in her work as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions if the taxpayer chooses to deduct his actual expenses. Heuer v. Commissioner, 32 T.C. 947 (1959).

CAUTION: If the standard mileage rate is used to compute the deductible costs of operating a vehicle, leasing expense cannot be deducted separately.

Automobile - Accidents. An automobile accident may result in a deductible casualty loss, unless the accident is caused by the willful negligence or willful neglect of the taxpayer or another person operating the taxpayer's automobile. Reg. Section 1.165-7(a)(3).

Automobile – Business travel. The costs of operating and maintaining an automobile attributable to a taxpayer’s use of the automobile in his work may qualify as deductible unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions if the automobile is used for business purposes. Heuer v. Commissioner, 32 T.C. 947 (1959). A taxpayer can use his actual expenses to determine his deduction or use the standard mileage rate. The standard mileage rate for determining the deductible costs of operating an automobile for business purposes is 36 cents per mile for 2003 and 37.5 cents per mile for 2004. Actual auto expenses that can be deducted include depreciation, licenses, gas, oil, tolls, lease payments, insurance, garage rent, parking fees, registration fees, repairs, and tires. Rev. Proc. 2002-61, 2002-39 I.R.B. 616;  Rev. Proc. 2203-76, 2003-43 I.R.B. __.  If a taxpayer's car is furnished by his employer, he can deduct only his actual unreimbursedcar expenses and cannot use the standard mileage rate. Publication 463, Travel, Entertainment, Gift, and Car Expenses.

CAUTION: Commuting expenses (the costs of traveling from the taxpayer's home to his regular place of business), are non-deductible personal expenses. Reg. Section 1.162-2(e); Reg. Section 1.262-1(b)(5); Reg. Section 1.212-1(f).

Automobile – Expenses incurred on behalf of a charity. Out-of-pocket automobile expenses incurred by a taxpayer while performing gratuitous services for a qualified charitable organization qualify for the charitable contribution deduction. Francis v. Commissioner, T.C. Memo. 1988-226. The taxpayer may use a standard mileage rate to determine the amount of the deduction. Code Section 170(i). The standard mileage rate for charitable deduction purposes for 2003 and 2004 is 14 cents per mile. Rev. Proc. 2002-61, 2002-39 I.R.B. 61;  Rev. Proc. 2003-76, 2003-43 I.R.B. __.

Automobile - Medical equipment. The cost of an automobile that has been equipped with special equipment to permit a handicapped person to enter and operate the car is deductible as a medical expense, to the extent the cost exceeds the cost of a regular vehicle. Rev. Rul. 66-80, 1966-1 C.B. 57 (hand controls and other modified equipment in car); Rev. Rul. 70-606, 1970-2 C.B. 66 (automobile designed to accommodate wheelchair passengers).

CAUTION: The depreciation on the vehicle cannot be claimed as a medical expense. Pfersching v. Commissioner, T.C. Memo. 1983-341.

Automobile – Medical transportation. Out-of-pocket automobile expenses such as gas and oil, are deductible medical expenses when incurred for medical reasons. Depreciation, insurance, general repair, or maintenance expenses do not qualify for the medical expense deduction. Publication 502, Medical and Dental Expenses. The standard mileage rate may be used instead of actual expenses. The standard mileage rate allowed for out-of-pocket expenses for a taxpayer's use of his car for medical reasons is 12 cents a mile for 2003 and is 14 cents a mile for 2004. Rev. Proc. 2002-61, 2002-39 I.R.B. 61; Rev. Proc. 2003-76, 2003-43 I.R.B. __.

Automobile – Registration. State and local taxes on the registration or licensing of highway motor vehicles are deductible as personal property taxes only if the tax is ad valorem, or substantially in proportion to the value of the motor vehicle, and is imposed on an annual basis. Reg. Section 1.164-3(c)(3). Vehicle license and registration fees may be deducted as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions if they are incurred in the course of the taxpayer's work. Rul 74-454, 1974-2 C.B. 57.

CAUTION: If the standard mileage rate is used to compute the deductible costs of operating a vehicle, registration expenses cannot be deducted separately.

B 

Babysitting. The cost of babysitting services in order to enable the taxpayer to do unpaid volunteer or charity work is not deductible. Rev. Rul. 73-597, 1973-2 CB 69. The cost of child care is not deductible as a medical expense even if the expense is necessary in order for the taxpayer to receive medical or dental treatment. Rev. Rul. 78-266, 1978-2 C.B. 123.

NOTE: Expenses for household services and for the care of a qualifying individual (a dependent child under the age of 13 or a dependent or spouse who is mentally or physically incapable of self-care), may be eligible for the child and dependent care credit if the expenses are incurred to enable the taxpayer to be gainfully employed. Code Section 21(b)(2)(A).

Bad debts - Business. Business bad debts are fully deductible against ordinary income. Code Sections 166(a)(1), 166(d)(1)(B). A shareholder's loan to a corporation may be a business bad debt if the taxpayer is in the business of promoting, financing, and selling corporations. United States v. Generes, 405 U.S. 93, reh'gdenied, 405 U.S. 1033 (1972). A bad debt, arising out of a loan to a corporation that the taxpayer worked for, was held to be in connection with the taxpayer's trade or business of rendering services for pay and was therefore a business bad debt. Trent v. Commissioner, 291 F.2d 669 (2d Cir. 1961). A taxpayer who adopts the reserve method of treating bad debts may deduct from gross income a reasonable addition to the reserve in lieu of deducting specific bad debt items. Reg. Section 1.166-4(a). A taxpayer other than a bank cannot claim a bad debt deduction due to the worthlessness of any debt owed by a political party, while a bank can claim a bad debt deduction only if the loan was made to the political party in accordance with its usual commercial practices. Reg. Section 1.271-1(a).

Bad Debts - Non-business. Non-business bad debts are deductible by individual taxpayers only as short-term capital losses and only in the year they become totally worthless. Code Sections 166(a)(1), 166(d)(1).

Baggage. The cost of sending baggage and sample or display material between regular and temporary work locations is deductible as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions. IRS Pub. 463, Travel, Entertainment and Gift Expenses.

Ballet. The cost of ballet training for an individual suffering from scoliosis is not deductible as a medical expense, even if recommended by the taxpayer's physician and beneficial to the taxpayer's health, unless the expenses would not otherwise have been incurred for non-medical reasons. Ende v. Commissioner, T.C. Memo. 1975-256.

Bandages. The cost of bandages may qualify as a deductible medical expense. Rev. Rul. 2003-58, 2003-22 I.R.B. 959.

Bank deposits. A loss on deposits that occurs when a bank, credit union, or other financial institution becomes insolvent or bankrupt may be deducted as a casualty loss, ordinary loss, or non-business bad debt. Code Section 165(l)(1), (5).

Bank fees. Fees charged by a bank for the privilege of writing checks on a personal checking account cannot be deducted, even if the account pays interest. Rev. Rul. 82-59, 1982-1 C.B. 47. However, a taxpayer may deduct the monthly service charges paid to a bank to participate in an automatic investment service plan as expenses for the production and collection of income subject to the 2 percent floor on miscellaneous itemized deductions. In such a plan, the taxpayer instructs the bank to invest a portion of the funds on deposit in an account each month in a common stock of certain specified corporations. Rev. Rul. 75-548, 1975-2 C.B. 331.

Bar association. A taxpayer may claim an unreimbursed employee expense deduction for dues paid to professional organizations such as bar associations and medical associations, if membership helps the taxpayer carry out the duties of his job. Reg. Section 1.274-2(a)(2)(iii)(b).

NOTE: These costs may be deducted above the line by an individual if incurred in the practice of a profession not as an employee. Reg. Section 1.162-6.

Bar exam fees. The original costs of obtaining a business license required for doing business such as the costs of the bar exam required to be admitted to the practice of law, are non-deductible capital expenditures. Sharon v. Commissioner, 591 F.2d 1273 (9th Cir. 1978), cert. denied, 442 U.S. 941 (1979).

Bar review course. The costs of review courses designed to prepare the taxpayer for the bar exam are non-deductible personal expenses. Reg. Section 1.162-5(b)(2)(iii), Ex. 3.

Bargain sales. A bargain sale of property (a sale or exchange for less than the property's fair market value), to a qualified organization results in a charitable contribution deduction in the amount of the difference between the sale price and the fair market value. Judge v. Commissioner, T.C. Memo. 1976-283.

Barrier removal. A taxpayer may elect to deduct up to $15,000 per year of architectural and transportation barrier removal expenses incurred for the purpose of making any facility or public transportation vehicle owned or leased by the taxpayer for use in his trade or business more accessible to and usable by handicapped and elderly individuals. Code Section 190(a).

NOTE: Alternatively, an eligible small business that pays or incurs expenses to provide access to persons with disabilities in order to comply with the Americans with Disabilities Act of 1990 may claim a tax credit for 50 percent of its eligible access expenditures for the year that exceed $250, but do not exceed $10,250. Code Section 44(a).

Bed. The expense of purchasing a hospital bed, which was prescribed by the taxpayer's doctor for the relief of osteoporosis of the spine, qualifies as a deductible medical expense. PLR 8036015.

Beetle infestation. Sudden destruction of plants or trees caused by an unexpected or unusual infestation of beetles or other insects may result in a deductible personal casualty loss. IRS Publication 547, Casualties, Thefts, and Disasters.

CAUTION: In practice, the Tax Court has only allowed a casualty loss for this reason in cases where pine trees were attacked by southern pine beetles. Notter v. Commissioner, T.C. Memo. 1998-391.

Birth control pills. Birth control pills are deductible as a medical expense when prescribed by a doctor. Rev. Rul. 73-200, 1973-1 C.B. 140.

Birth defect. The cost of giving remedial language training to correct a condition caused by a birth defect is a deductible medical expense. Rev. Rul. 69-607, 1969-2 C.B. 40.

Blackmail. A deductible theft loss may arise from the taking of money or property from the taxpayer by blackmail. Rev. Rul. 72-112, 1972-1 C.B. 60.

Blasting. Blasting can be the cause of a deductible personal casualty loss. The damage may be deductible even if it occurred over a period of months. Durden v. Commissioner, 3 T.C. 1 (1944), acq. 1944 C.B. 8.

Blindness. Payments made to a reader for the blind for services performed in connection with the conduct of a blind employee's work are deductible as impairment-related employee expenses, which are not subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 75-316, 1975-2 C.B. 54. Amounts a parent paid to a person to accompany his blind child throughout the school day to guide the child while walking are deductible as medical expenses. Rev. Rul. 64-173, 1964-1 C.B. 121.

NOTE: A taxpayer who is totally or partially blind on the last day of the year and does not itemize deductions is entitled to a higher standard deduction. Code Section 63(f)(2).

Blood. The fair market value of blood donated by an individual to a qualified charitable organization is not deductible as a charitable contribution because furnishing blood for a transfusion or to a blood bank is analogous to the performance of personal services by the donor, rather than a contribution of property. Rev. Rul. 53-162, 1953-2 C.B. 127.

Boats. The fair market value of a boat donated to a qualified organization may be deducted as a charitable contribution. Sergeant v. Commissioner, T.C. Memo. 1998-265. A boat that has sleeping, cooking, and toilet facilities is treated as a home for purposes of the home mortgage interest deduction. Reg. Section 1.163-10T(p)(3)(ii).

Boats – Accidents. A boat accident may result in a deductible casualty loss, unless the accident is caused by the willful negligence or willful neglect of the taxpayer or another person operating the taxpayer's car. Reg. Section 1.165-7(a)(3).

Bond premium. If a taxpayer pays a premium to purchase a bond, the premium is part of the taxpayer's basis in the bond. If the bond yields taxable interest the taxpayer may choose to amortize the premium over the life of the bond, with the amount of an amortizable bond premium for the taxable year allowed as a deduction. Code Section 171(a)(1). For tax-exempt bonds, no deduction for the amount of an amortizable bond premium for the taxable year is allowed (Code Section 171(a)(2)), although any premium paid on tax-exempt bonds must be amortized. Reg. Section 1.171-1(c)(1).

Books. The cost of books and supplies required for education that is required by the taxpayer's employer or the law or that maintains or improves skills needed in the taxpayer's present work is deductible as a work-related educational expense. IRS Pub. 508, Tax Benefits for Work-Related Education.

Borrowed funds. A taxpayer who makes a charitable contribution with borrowed funds can deduct the contribution in the year it was made, regardless of when the taxpayer repays the loan. Granan v. Commissioner, 55 T.C. 753 (1971).

Bottled water. The cost of bottled water does not constitute a deductible medical expense. Flemming v. Commissioner, T.C. Memo 1980-583.

Boy Scouts of America. Donations to a nonprofit educational organization such as the Boy Scouts are deductible as charitable contributions unless the contribution is a substitute for tuition or other enrollment fees. Weingarden v. Commissioner, 86 T.C. 669 (1986).

Braille. The cost of teaching Braille to a visually impaired child is deductible as a medical expense. Reg. Section 1.213-1(e)(1)(v)(a).

Braille books. The cost of Braille books and magazines purchased for a blind child are deductible as a medical expense, but only to the extent that their cost exceeds the purchase price for regularly printed editions. Rev. Rul. 75-318, 1975-2 C.B. 88.

Breach of promise to marry. Amounts paid as damages for breach of a promise to marry, and attorney's fees and other costs of a suit to recover such damages, are non-deductible personal expenses. Reg. Section 1.262-1(b)(6).

Breakage. Accidentally breaking articles such as glassware or china under normal conditions does not give rise to a deductible casualty loss. Diggs v. Commissioner, T.C. Memo. 1959-99, aff'd, 281 F.2d 326 (2d Cir. 1960), cert. denied, 364 U.S. 908 (1960).

Bribes. Illegal bribes and kickbacks are not deductible. Code Section 162(c).

Broker commissions. Commissions paid in connection with an IRA or other investment property are subject to the IRA contribution limits and thus generally are not deductible. Rev. Rul. 86-142, 1986-2 C.B. 60.

TIP: Reasonable IRA trustee fees in excess of the maximum amount deductible for IRA contributions are deductible as expenses for the production of income subject to the 2 percent floor on miscellaneous itemized deductions if they are billed and paid separately. Rev. Rul. 84-146, 1984-2 C.B.

Burglary. The loss of money or property through burglary may be deductible as a theft or casualty loss. Rev. Rul. 72-112, 1972-1 C.B. 60.

Burial expenses. Burial or funeral expenses, including the cost of a cemetery lot, are non-deductible personal expenses. Carr v. Commissioner, T.C. Memo. 1979-400.

NOTE: Reasonable funeral expenses are deductible for estate tax purposes, but not deductible for estate income tax purposes. Code Section 642(g); Code Section 2053(a)(1).

Bus fare. The costs of air, rail, and bus transportation may be deductible as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.162-2(a). The cost of transportation incurred primarily for, and essential to, medical care is deductible as a medical expense. Code Section 213(d)(1)(B).

Business bad debt. An employee's business bad debt such as a loan to the corporation the that the employee had to make to keep his job, may be deductible as an unreimbursedemployee expense subject to the 2 percent floor on miscellaneous itemized deductions. Trent v. Commissioner, 291 F.2d 669 (2d Cir. 1961).

Business liability insurance. An employee may be able to deduct business liability insurance premiums as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 76-277, 1976-2 C.B. 41.

NOTE: These costs may be deducted above the line by an individual if incurred in the practice of a profession not as an employee. Reg. Section 1.162-6.

Business meal. A taxpayer may deduct as an unreimbursed employee expense 50 percent of the cost of a meal, including taxes and tip, if the meal is either associated with or directly related to the taxpayer's work. The 2 percent limit on miscellaneous itemized deductions is applied after the 50 percent meals and entertainment limit is applied. Code Sections 274(k), 274(n)(1).

NOTE: These costs may be deducted above the line by an individual if incurred in the practice of a profession not as an employee. Reg. Section 1.162-6.

Buyer resistance. Even in the absence of physical damage to the taxpayer's property, permanent buyer resistance due to changes in the neighborhood following flood damage and the resulting demolishment of nearby residences may give rise to a deductible casualty loss. Finkbohner v. United States, 788 F.2d 723 (11th Cir. 1986).

C

Campaign expenses. The expenses of seeking political office are non-deductible on the ground that they relate to office-seeking activities rather than to activities normally engaged in by officeholders, even if the candidate is running for re-election to the office and it represents his primary or sole employment. McDonald v. Commissioner, 323 U.S. 57 (1944).

Canadian charitable organizations. Donations to certain Canadian charitable organizations covered under the income tax treaty between the United Statesand Canada may be deducted as charitable contributions for U.S.federal income tax purposes. Notice 99-47, 1999-2 C.B. 344.

Cancellation of lease. Because no deduction is available for the loss of future income that was never received, a lessor who receives an amount in cancellation of a lease that was less than the value of the remaining rental payments for the unexpired period of the lease cannot deduct the difference between the amount received and the amount owed under the lease. Hort v. Commissioner, 313 U.S. 28 (1941).

Capital expenses. Capital expenses are generally not deductible for individuals. Code Section 263(a).

Capital expenses – Medical care. Capital expenses incurred for the primary purpose of medical care, may qualify as a deductible medical expense to the extent that the expenditure exceeds the increase in the value of the related property. Gerard v. Commissioner, 37 T.C. 826, 829-830 (1962).

Capital gains tax. A state tax on all net gains from the sale or exchange of capital assets that have been earned, actually or constructively received, accrued or credited to the taxpayer during the taxable year is a deductible state income tax. PLR 8411079.

Cars. The fair market value of a car, boat, or aircraft donated to a qualified organization may be deducted as a charitable contribution. SCA 1998-022 (Dec. 4, 1997) (automobiles); Sergeant v. Commissioner, T.C. Memo 1998-265 (boats). The costs of shipping the taxpayer's car from his former home to a new home in a move connected with the start of work in a new location is deductible as a moving expense. Rev. Rul. 65-309, 1965-2 C.B. 77.

Cars - Accidents. A car accident may result in a deductible casualty loss, unless the accident is caused by the willful negligence or willful neglect of the taxpayer or another person operating the taxpayer's car. Reg. Section 1.165-7(a)(3).

Cars – Business travel. The costs of operating and maintaining a car attributable to a taxpayer’s use of the car in her work may qualify as deductible unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions if the automobile is used for business purposes. Heuer v. Commissioner, 32 T.C. 947 (1959). A taxpayer can use his actual expenses to determine his deduction or use the standard mileage rate. The standard mileage rate for determining the deductible costs of operating an automobile for business purposes is 36 cents per mile for 2003 and 37.5 cents per mile for 2004. Actual auto expenses that can be deducted include depreciation, licenses, gas, oil, tolls, lease payments, insurance, garage rent, parking fees, registration fees, repairs, and tires. Rev. Proc. 2002-61, 2002-39 I.R.B. 616; Rev. Proc. 2003-76, 2003-43 I.R.B. __.  If a taxpayer's car is furnished by his employer, he can only deduct his actual unreimbursed car expenses and cannot use the standard mileage rate. Publication 463, Travel, Entertainment, Gift and Car Expenses.

CAUTION: Commuting expenses (the costs of traveling from the taxpayer's home to his regular place of business), are non-deductible personal expenses. Reg. Section 1.162-2(e); Reg. Section 1.262-1(b)(5); Reg. Section 1.212-1(f).

Cars – Expenses incurred on behalf of a charity. Out-of-pocket automobile expenses incurred by a taxpayer while performing gratuitous services for a qualified charitable organization qualify for the charitable contribution deduction. Francis v. Commissioner, T.C. Memo. 1988-226. The taxpayer may use a standard mileage rate to determine the amount of the deduction. Code Section 170(i). The standard mileage rate for charitable deduction purposes is 14 cents per mile for 2003 and 2004. Rev. Proc. 2002-61, 2002-39 I.R.B. 616;  Rev. Proc. 2003-76, 2003-43 I.R.B. __. 

Cars – Medical transportation. Out-of-pocket automobile expenses such as gas and oil, are deductible medical expenses when incurred for medical reasons. Depreciation, insurance, general repair, or maintenance expenses do not qualify for the medical expense deduction. Publication 502, Medical and Dental Expenses. The standard mileage rate may be used instead of actual expenses. The standard mileage rate allowed for out-of-pocket expenses for a taxpayer's use of his car for medical reasons is 12 cents a mile for 2003 and 14 cents per mile for 2004. Rev. Proc. 2002-61, 2002-39 I.R.B. 616; Rev. Proc. 2003-76, 2003-43 I.R.B. __.

Car pools. A taxpayer cannot deduct the expenses of using his car in a non-profit car pool. However, any payments received from passengers are treated as reimbursement of the taxpayer's expenses and do not have to be included in the taxpayer's income. Publication 463, Travel, Entertainment, Gift, and Car Expenses.

Car registration. State and local taxes on the registration or licensing of highway motor vehicles are deductible as personal property taxes only if the tax is ad valorem, or substantially in proportion to the value of the motor vehicle, and is imposed on an annual basis. Reg. Section 1.164-3(c)(3). Vehicle license and registration fees may be deducted as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions if they are incurred in the course of the taxpayer's work. Rul 74-454, 1974-2 C.B. 57.

CAUTION: If the standard mileage rate is used to compute the deductible costs of operating a vehicle, registration expenses cannot be deducted separately.

Casualty or theft loss. A taxpayer can deduct a loss caused by casualty or theft. The total casualty or theft losses of personal use property for a year must be reduced by 10 percent of the taxpayer's adjusted gross income, and after this reduction must be further reduced by one hundred dollars for each separate casualty or theft event. Code Section 165.

Cellular telephone. An employee may take an unreimbursed employee expense deduction subject to the 2 percent floor on miscellaneous itemized deductions for depreciation on a cellular telephone used in her work if its use is for the convenience of the employer and required as a condition of her employment. Code Section 280F(d)(4)(A)(v).

Cemetery lot. Burial or funeral expenses, including the cost of a cemetery lot, are not deductible for income tax purposes. Carr v. Commissioner, T.C. Memo 1979-400.

NOTE: Funeral expenses are deductible for estate tax purposes. Code Section 2053(a)(1).

Certification in a new state. A taxpayer who has met the minimum educational requirements for teachers in one state is considered to have met the minimum educational requirements in all states, even if additional education is required in order to be certified in another state, and thus may deduct as work-related educational expenses the cost of any additional education needed to qualify as a teacher in another state. Rev. Rul. 71-58, 1971-1 C.B. 55.

Chamber of Commerce. Money or property donated to a chamber of commerce is not deductible as a charitable contribution. IRS Pub. 526, Charitable Contributions. A taxpayer may claim an unreimbursedemployee expense deduction subject to the 2 percent floor on miscellaneous itemized deductions for dues paid to a chamber of commerce if membership helps the taxpayer carry out the duties of his job. Reg. Section 1.162-15(c).

NOTE: These costs may be deducted above the line by an individual if incurred in the practice of a profession not as an employee. Reg. Section 1.162-6.

Change of command ceremony. Entertainment expenses incurred by a Lieutenant Colonel in the Marine Corps for receptions connected to a change-of-command ceremony, which is an official function, were held to be deductible as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Fogg v. Commissioner, 89 T.C. 310 (1987).

Charitable contributions. A voluntary donation or gift to or for the use of a qualified organization is deductible as a charitable contribution. Code Section 170(a)(1).

Charitable contributions - Use of property. A taxpayer is not allowed a charitable deduction for donating the right to use property to a charity because it is a gift of a partial interest in the property. Code Section 170(f)(3)(A).

Charitable split-dollar life insurance arrangements. No deduction will be allowed where a taxpayer makes a donation to a charity with the understanding that the charity will use the transferred funds, or a portion thereof, to pay the premiums of a life insurance policy on the taxpayer's life, and the death proceeds will be split between the charity and the taxpayer's beneficiaries at the time of the taxpayer's death. Code Section 170(f)(10).

Charitable travel, meals, and lodging. No deduction is allowed for transportation and other travel expenses relating to the performance of services away from home for a charitable organization, unless there is no significant element of personal pleasure, recreation, or vacation in the travel. Code Section 170(j). Reasonable expenditures for meals and lodging will only be allowed if the taxpayer is performing volunteer charitable services while away from home overnight in the course of rendering such services. Reg. Section 1.170A-1(g). Rev. Rul. 56-508, 1956-2 C.B. 126, modified by Rev. Rul. 84-61, 1984-1 C.B. 39. Transportation expenses incurred while rendering volunteer services qualify for the charitable deduction even if they are not performed away from home. Reg. Section 1.170A-1(g).

Charity benefit event. If a taxpayer pays a qualified charitable organization more than the fair market value for the right to attend a charity ball, banquet, show, sporting event, or other benefit event, the taxpayer may deduct the amount paid above the fair market value of the privileges or other benefits received. Reg. Section 1.170A-1(h)(2).

Charity golf tournament. A taxpayer may deduct (without applying the 80 percent limitation on entertainment expenses), the cost of tickets to a golf tournament organized by the local volunteer fire company, where the event is run by volunteers and all net proceeds will be used to buy new fire equipment, if the event otherwise qualifies as an unreimbursed employee expense. The deduction is subject to the 2 percent floor on miscellaneous itemized deductions. Notice 87-23, 1987-1 C.B. 467.

Checking account fees. Fees charged by a bank for the privilege of writing checks on a personal checking account cannot be deducted, even if the account pays interest. Rev. Rul. 82-59, 1982-1 C.B. 47.

Child care. The cost of babysitting services in order to enable the taxpayer to do charity work is not deductible. Rev. Rul. 73-597, 1973-2 CB 69. The cost of child care is not deductible as a medical expense even if the expense enables the taxpayer to get medical or dental treatment. Rev. Rul. 78-266, 1978-2 C.B. 123.

NOTE: Expenses for household services and for the care of a qualifying individual (a dependent child under the age of 13 or a dependent or spouse who is mentally or physically incapable of self-care), may be eligible for the child and dependent care credit if the expenses are incurred to enable the taxpayer to be gainfully employed. Code Section 21(b)(2)(A).

Child support. Child support payments are neither deductible by the payer nor taxable to the payee. Code Sections 71(c)(1), 215(a).

Child expenses. Expenditures attributable to the income of a child, whether made by the parent or the child, are deemed to have been paid or incurred by the child. Code Section 73(b). The child is entitled to take deductions not only for expenditures that would be commonly considered business expenses or unreimbursed employee expenses, but also for other expenditures such as charitable contributions made by the parent in the name of the child and out of the child's earnings. Reg. Section 1.73-1(b).

Chiropractor. Fees paid to a chiropractor for medical care are deductible as medical expenses. Rev. Rul. 55-261, 1955-1 C.B. 307.

Christian Science practitioner. Fees paid to a Christian Science practitioner for medical care are deductible as medical expenses. Rev. Rul. 55-261, 1955-1 C.B. 307.

Church building bonds. The purchase of building bonds issued by a church is not a gift made to the church since the purchaser receives something of value in return for payment of the purchase price. Rev. Rul. 58-262, 1958-1 C.B. 143. However, a taxpayer may obtain a charitable contribution deduction by making a gift of the bonds to the church. Story v. Commissioner, 38 T.C. 936 (1968).

Church deacon. A taxpayer can deduct as a charitable contribution any unreimbursed expenses he has while in a permanent diaconate program established by his church. These expenses include the cost of vestments, books, and transportation required in order to serve in the program as either a deacon candidate or as an ordained deacon. Rev. Rul. 76-89, 1976-1 C.B. 58.

Church building fund assessments. Church building fund assessments are deductible as charitable contributions. Rev. Rul. 70-47, 1970-1 C.B. 49.

Church dues. Periodic church dues are deductible as charitable contributions. Rev. Rul. 70-47, 1970-1 C.B. 49.

Church pew rents. Church pew rents are deductible as charitable contributions. Rev. Rul. 70-47, 1970-1 C.B. 49.

Churches. Donations to a church or a convention or organization of churches are deductible as charitable contributions. Code Section 170(b)(1)(A)(i).

Civil Defense organizations. Donations to civil defense organizations are deductible as charitable contributions. Rev. Rul. 56-509, 1956-2 C.B. 129.

Civic league. Money or property donated to a civic league is not deductible as a charitable contribution. IRS Pub. 526, Charitable Contributions.

Clarinet. The cost of a clarinet and clarinet lessons, to correct teeth defects, is deductible as a medical expense. Rev. Rul. 62-210, 1962-2 C.B. 89.

Clean fuel vehicle. A portion of the cost of a qualified clean fuel vehicle is deductible, as is a portion of the cost of property used to store or dispense clean-burning fuel into a motor vehicle or to recharge motor vehicles powered by electricity. Code Section 179A(a).

Closed captioning. The cost of equipment that displays the audio part of television programs as subtitles for hearing-impaired persons is deductible as a medical expense. This deduction covers both the cost of a self-contained unit that can be attached to any conventional television set and the excess of the cost of a specially equipped color television set over the cost of the same model conventional color television set. Rev. Rul. 80-340, 1980-2 C.B. 81.

Closing costs. Closing costs are not deductible as home mortgage interest. Waters v. Commissioner, T.C. Memo. 1995-535.

Clothing. Although the cost of clothing generally is a non-deductible personal expense, the cost and upkeep of work clothes and uniforms is deductible if the taxpayer must wear them as a condition of employment and the clothes are not suitable for everyday wear. Pevsner v. Commissioner, 628 F.2d 467 (5th Cir. 1980), reh'g denied, 636 F.2d 1106 (5th Cir. 1981).

Clothing donations. The fair market value of used clothing donated to a qualified organization is deductible as a charitable contribution. Kaplan v. Commissioner, 43 T.C. 663 (1965).

Club dues. No deduction is allowed for the cost of membership in any club organized for business, pleasure, recreation, or other social purpose, including athletic, luncheon, sporting, airline, and hotel clubs. Code Section 274(a)(1)(B).

College professor. A college professor can deduct as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions research expenses, including travel expenses, for teaching, lecturing, or writing and publishing on subjects that relate directly to the field of his teaching duties if the professor undertook the research as a means of carrying out the duties expected of a professor and without expectation of profit apart from salary. The deduction for these expenses is subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Rul. 63-275, 1963-2 C.B. 85.

College tuition. College tuition is generally a non-deductible personal expense. Code Section 262. Tuition for a work-related educational program may be deductible as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.162-5(a).

NOTE: Up to $3,000 in qualified tuition and related expenses in 2003 is deductible above the line if the taxpayer’s adjusted gross income does not exceed $65, 000 ($130,000 if filing a joint return). The amount deductible is $4000 in years 2004 and 2005 if the taxpayer’s adjusted gross income does not exceed $65, 000 ($130,000 if filing a joint return), and is $2000 if the taxpayer’s adjusted gross income does not exceed $80,000 ($160,000 if filing a joint return). No deduction is allowed for any expense for which a deduction is allowed to the taxpayer under any other provision. Code Section 222.

Comic books. A high school teacher who sponsored the school's extracurricular comic book club cannot deduct the cost of comic books purchased for use by the club and subsequently add to his own collection. Tesar v. Commissioner, T.C. Memo. 1997-207.

Commercial default. Where a taxpayer enters into a transaction with a third party expecting to receive payment for goods or services, and the third party's failure to pay the taxpayer is due to commercial default rather than criminal theft, the taxpayer cannot claim a deductible theft loss. Barry v. Commissioner, T.C. Memo. 1991-382.

Commissions. Commissions paid in connection with an IRA or other investment property are not deductible. Rev. Rul. 86-142, 1986-2 C.B. 60.

NOTE: Reasonable IRA trustee fees in excess of the maximum amount deductible for IRA contributions are deductible as expenses for the production of income subject to the 2 percent floor on miscellaneous itemized deductions if they are billed and paid separately. Rev. Rul. 84-146, 1984-2 C.B. 61.

Commitment to mental institution. The legal expenses paid in committing the taxpayer's spouse to a mental institution are deductible as medical expenses where, in the absence of that commitment, the patient would not have been able to receive treatment. Gerstacker v. Commissioner, 414 F.2d 448 (6th Cir. 1969).

Community chest. A community chest (a general fund set up to receive donations to help pay for a community's charity and social welfare needs), is a qualified organization for purposes of the charitable deduction. Code Section 501(c)(3).

Commuting expenses. The expenses of traveling between the taxpayer's home and principal place of business are non-deductible personal expenses. Reg. Section 1.262-1(b)(5). Even if a taxpayer suffers from a medical condition that requires him to use a special mode of transportation to travel between his home and place of employment, the transportation expenses are not considered essential to the receipt of medical care and thus constitute non-deductible commuting expenses rather than deductible medical expenses. Coopersmith v. Commissioner, T.C. Memo. 1971-280. Commuting expenses to a temporary work location are deductible travel expenses. Brockman v. Commissioner, T.C. Memo. 2003-3 (1/7/03).

Computer rental fees. A taxpayer traveling away from home for business purposes may be able to deduct the cost of renting a computer while away from home as an unreimbursedemployee expense subject to the 2 percent floor on miscellaneous itemized deductions. IRS Pub. 463, Travel, Entertainment, Gift, and Car Expenses.

Computer - Used in taxpayer's work. A taxpayer may deduct, as an unreimbursed employee expense, depreciation (computed under the straight line method), on a computer used in her work  if its use is for the convenience of the employer and required as a condition of her employment. Code Section 280F(d)(4)(A)(iv). A taxpayer who satisfies the employer convenience and condition of employment tests can claim an accelerated depreciation deduction and a Code Section 179 deduction if she uses the home computer more than 50 percent of the time in her work. Code Section 280F(b)(1). However, the 50 percent test does not apply to a computer used only in a part of the home that meets the requirements for taking a home office deduction. Temp. Reg. 1.280F-6T(b)(5).

Computer - Used to produce income. An individual may deduct depreciation on his home computer if he uses it to produce income, for example, to manage his investments that produce taxable income. Reg. Section 1.280F-6T(d)(3).

Condemnation. No deduction is available if the taxpayer's home is subject to condemnation, the legal taking of private property for public use without the owner's consent. However, because a condemnation is treated as a sale, any gain on the sale is eligible for exclusion. Code Section 121(d)(5).

Conditional gift. If a charitable contribution is a conditional gift that depends on a future act or event that may not take place, the donor can take an immediate deduction only if there is merely a negligible chance that the act or event will not take place. Reg. Section 20.2055-2(b).

Condominiums. Condominium dues or fees paid on a condominium the taxpayer uses as a principal residence are not deductible. Code Section 262(a). Mortgage interest is deductible under the same rules as other mortgage interest.

NOTE: A taxpayer who rents his condominium to others can deduct depreciation, repairs, upkeep, dues, interest and taxes, and assessments for the care of the common parts of the structure. Publication 527, Residential Rental Property.

Congressional hearings. Expenses incurred by a political appointee in connection with investigations and congressional hearings on the confirmation of his nomination do not constitute deductible business expenses. Estate of Rockefeller v. Commissioner, 83 T.C. 368 (1984).

Conservation contribution. A conservation contribution of real property to a qualified organization to be used only for conservation purposes is deductible as a charitable contribution. Code Section 170(h).

Construction tax. A residential construction tax, levied by a school district on each residential unit constructed in the district, does not constitute a deductible real estate tax because it is not levied for the general welfare but solely for school purposes, it is not triggered by the ownership of real property but by the use of it to build a residence, and it is not measured by the value of the real property but is a flat rate per residence to be constructed, regardless of value. PLR 8117149.

Contact lens insurance. The cost of a policy that provides for the replacement of lost or damaged contact lenses is a deductible medical expense. Rev. Rul. 74-429, 1974-2 C.B. 83.

Contact lenses. Amounts paid for contact lenses needed for medical reasons are deductible as a medical expense, as is the cost of equipment and materials required for using contact lenses such as saline solution and enzyme cleaner. Rev. Rul. 74-429, 1974-2 C.B. 83.

Continuing education. Education that maintains or improves skills needed in the taxpayer's present work such as refresher courses, courses on current developments, and academic or vocational courses, is deductible work-related education, subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.162-5(c).

Contributions in trust. If the taxpayer makes a gift to a charitable organization of a remainder interest of property held in trust, a charitable contribution deduction is allowed only if the trust is a charitable remainder annuity trust, a charitable remainder unitrust, or a pooled income fund. Code Section 170(f)(2)(A). If the taxpayer makes a gift of any other interest in property transferred in trust, a charitable contribution deduction is allowed only if the interest is in the form of a guaranteed annuity or if the trust instrument specifies that the interest is a fixed percentage distributed yearly of the fair market value of the trust property (to be determined yearly), and the grantor is treated as the owner of such interest. Code Section 170(f)(2)(B).

Controlled substances. Amounts paid to obtain a controlled substance such as marijuana, in violation of federal law, are not deductible medical expenses even if state law permits the use of the substance when purchased with a physician's prescription. Rev. Rul. 97-9, 1997-1 C.B. 77.

Conventions. The expenses of attending a convention are deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions if the taxpayer can show that attendance benefits his trade or business. Rev. Rul. 63-266, 1963-2 C.B. 88.

Conventions outside North America. The expenses of attending a convention or seminar outside the North American area are deductible unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions only if the meeting is directly related to the taxpayer's work and it is as reasonable to hold the meeting outside the North American area as in it. Code Section 274(h)(1).

Conversion of U.S. dollars. The conversion of U.S. dollars into foreign currency at an official rate of exchange that is not as favorable as the free market rate does not result in a deductible loss. Rev. Rul. 74-276, 1974-1 C.B. 54.

Cooperative housing mortgage interest. A tenant-stockholder in a cooperative housing corporation can deduct amounts paid to the cooperative housing corporation representing her share of the real estate taxes paid or incurred on the cooperative's houses or apartment building and on the land where they are situated. Code Section 216(a)(1). Similarly, a tenant stockholder can claim a home mortgage interest deduction for her share of interest paid or incurred by the cooperative housing corporation on a debt to buy, build, change, improve, or maintain the housing or on a debt to buy the land. Code Section 216(a)(2).

NOTE: A tenant-stockholder who rents her apartment in the cooperative building to others usually can deduct, as a rental expense, all the maintenance fees she pays to the cooperative housing corporation. IRS Pub. 527, Residential Rental Property.

Corporate expenses. Because a corporation is treated as a separate tax entity from its shareholders, an individual shareholder cannot claim a deduction from her individual income for the expenses of a corporation, even if the shareholder personally pays the expenses. Deputy v. DuPont, 308 U.S. 488, 494 (1940).

Cosmetic surgery. Surgery for purely cosmetic reasons that is directed at improving the taxpayer's appearance and does not meaningfully promote the proper function of the body or prevent or treat an illness or disease is not deductible as a medical expense. Code Section 213(d)(9).

Counseling. The cost of spiritual guidance or counseling is not deductible as a medical expense. Miller v. Commissioner, T.C. Memo 1980-136.

Country clubs. No deduction is permitted for amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or other social purposes. Code Section 274(a)(3). Clubs organized for business, pleasure, or other social purposes include but are not limited to country clubs, golf and athletic clubs, airline clubs, hotel clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussion. Reg. Section 1.274-2(a)(2)(iii)(a).

Cover charges. A taxpayer may deduct, as employee expenses subject to the 2 percent floor on miscellaneous itemized deductions, 50 percent of cover charges for admission to a nightclub if the entertainment is associated with or directly related to the taxpayer's business. IRS Pub. 463, Travel, Entertainment, Gift, and Car Expenses.

Coverdell education savings accounts. No deduction is allowed for contributions to a Coverdell education savings account (formerly called an education IRA). Code Section 530.

NOTE: Distributions are not included in the beneficiary's income as long as they are used for qualified higher education purposes. Code Section 530(d)(2).

CPA review course. The cost of review courses to prepare the taxpayer for the certified public accountant examination is not deductible because the courses are part of a program of study that can qualify the taxpayer for a new profession. Glenn v. Commissioner, 62 T.C. 270 (1974).

Credit card fees. Credit card fees are a non-deductible personal expense even if the fees are charged by the credit issuer in conjunction with the taxpayer's use of the credit card to pay her taxes. SCA 200115032.

Credit union deposits. A loss on deposits that occurs when a bank, credit union, or other financial institution becomes insolvent or bankrupt may be deducted as a casualty loss, ordinary loss, or non-business bad debt. If the loss is deducted as an ordinary loss, it is limited to $20,000 per financial institution, reduced by any insurance recovery, and subject to the 2 percent floor on miscellaneous itemized deductions. Deposits that were federally insured cannot be deducted as an ordinary loss. One percent owners or officers of the insolvent financial institution, and persons related to them, cannot take the loss as an ordinary loss. Code Section 165(l)(1), (5).

Criminal activity. Deductions arising out of criminal activity generally are disallowed when allowing the deductions would severely frustrate public policy, although deductions may be allowed for expenses that also would be incurred in a legitimate activity. Compare Lincoln v. Commissioner, T.C. Memo. 1985-300 (no theft loss deduction allowed for money stolen by taxpayer's co-conspirators in scheme to purchase stolen goods because allowing a deduction would defeat purpose of statute designed to prevent trafficking in stolen goods), with Commissioner v. Sullivan, 356 U.S. 27 (1958) (deduction allowed for rents and wages incurred in operating illegal bookmaking enterprise, where the costs were the ordinary and necessary expenses of conducting an illegal but taxable operation).

Cruise ship. The costs of attending a convention, seminar, or similar meeting held on a cruise ship are not deductible as an unreimbursed employee business expense unless the taxpayer can establish that the meeting was directly related to the active conduct of the taxpayer's trade or business and that the cruise ship is registered in the United States and all ports of call are located in the United States or its possessions. If these conditions are satisfied, a taxpayer may deduct up to $2,000 per year in expenses of attending conventions on cruise ships, subject to the 2 percent floor on miscellaneous itemized deductions. Code Section 274(h)(2).

TIP: Expenses allocable to cruise ship conventions are not subject to the luxury water transportation rules, which limit the amount of any otherwise allowable deduction for costs of business travel by water to twice the highest federal per diem amount generally available to federal employees for travel in the United States, multiplied by the number of days in transit. Code Section 274(m)(1).

Cruise Ship - Medical expense deduction. The cost of traveling on a cruise ship is not deductible as a medical expense, even if the trip is beneficial to the taxpayer's general health and well-being, if it is not undertaken primarily for and essential to the taxpayer's medical care. Mizl v. Commissioner, T.C. Memo. 1980-227.

Crutches. Amounts paid to buy or rent crutches are deductible as a medical expense. Reg. Section 1.213-1(e)(1)(iii).

D

Damages for breach of employment contract. A taxpayer who breaks an employment contract may deduct, as a miscellaneous itemized deduction subject to the 2 percent floor, damages paid to the former employer if the damages are attributable to the pay received and reported by the taxpayer from that employer. Rev. Rul. 67-48, 1967-1 C.B. 50.

Dancing lessons. The cost of ballet training for an individual suffering from scoliosis is not deductible as a medical expense, even if recommended by the taxpayer's physician and beneficial to the taxpayer's health, unless the expenses would not otherwise have been incurred for non-medical reasons. Ende v. Commissioner, T.C. Memo. 1975-256. The cost of ballroom dance lessons recommended by the taxpayer's doctor as a form of therapy for arthritis and to alleviate nervous tension is not deductible as a medical expense because it is not proximately related to the taxpayer's medical care. France v. Commissioner, T.C. Memo. 1980-215.

Daycare. No deduction is allowed for the costs of child care. The cost of babysitting services in order to enable the taxpayer to do charity work is not deductible. Rev. Rul. 73-597, 1973-2 CB 69. The cost of child care is not deductible as a medical expense even if the expense enables the taxpayer to get medical or dental treatment. Rev. Rul. 78-266, 1978-2 C.B. 123.

NOTE: Expenses for household services and for the care of a qualifying individual (a dependent child under the age of 13 or a dependent or spouse who is mentally or physically incapable of self-care), may be eligible for the child and dependent care credit if the expenses are incurred to enable the taxpayer to be gainfully employed. Code Section 21(b)(2)(A).

Daycare center - Qualified charitable organization. A daycare center may be a qualified charitable organization if it is operated exclusively for educational purposes. Educational purposes includes the providing of care of children away from their homes if substantially all of the care provided by the organization is for purposes of enabling individuals to be gainfully employed, and the services provided by the organization are available to the general public. Code Section 501(k).

CAUTION: A contribution to a daycare center is a substitute for tuition or other enrollment fee, it is not deductible as a charitable contribution. Publication 526, Charitable Contributions.

Deacon. A taxpayer can deduct as a charitable contribution any unreimbursed expenses he has while in a permanent diaconate program established by his church. These expenses include the cost of vestments, books, and transportation required in order to serve in the program as either a deacon candidate or as an ordained deacon. Rev. Rul. 76-89, 1976-1 C.B. 58.

Deafness. The cost of special education such as sign language or lip reading, designed to alleviate the effects of deafness is deductible as a medical expense, as is the cost of a "note taker" to take notes in class for a deaf college student. Estate of Baer v. Commissioner, T.C. Memo. 1967-34. The cost of special equipment that allows a deaf person to communicate by telephone is deductible as a medical expense. Rev. Rul. 71-48, 1971-1 C.B. 99. Similarly, the cost of equipment that displays the audio part of television programs as subtitles for hearing-impaired persons is deductible as a medical expense. Rev. Rul. 80-340, 1980-2 C.B. 81.

Debt forgiveness – Loans. If a taxpayer lends a sum of money to a charitable organization and subsequently forgives the debt, the amount of debt cancelled generates a deductible charitable contribution in the year of the cancellation. Story v. Commissioner, 38 T.C. 936 (1962).

Debt forgiveness – Service-related debt. The forgiveness of a purported debt generated by services is not the equivalent of making a charitable contribution, so that a clergy person cannot claim a deduction when he forgives his church's obligation to pay his overdue housing allowance. Winston v. Commissioner, T.C. Memo. 1984-248.

Decline in value. A decline in the value of stock owned by the taxpayer, due to a fluctuation in the market price of the stock or to other similar cause, does not give rise to a loss deduction as long as the stock retains any recognizable value. Reg. Section 1.165-4(a). If the stock loses all value, the taxpayer may be able to claim a deduction for a loss due to worthless securities. Code Section 165(g).

Delegate expenses. A chosen representative attending a convention of a qualified organization can take a charitable deduction for unreimbursed expenses for travel and transportation, including a reasonable amount for meals and lodging, while away from home overnight in connection with the convention. However, a delegate cannot deduct personal expenses for sightseeing, fishing parties, theater tickers, or nightclubs, or expenses for the delegate's spouse or children. Rev. Rul. 58-240, 1958-1 C.B.141.

Demolition expenses. The owner of a structure generally cannot claim a deduction for any amount expended for the demolition of the structure or any loss sustained on account of the demolition. Code Section 280B.

Demolition expenses – Loss incurred before demolition. A loss sustained before a building's demolition will not be treated as having been sustained on account of the demolition of the building and therefore will not be disallowed. De Cou v. Commissioner, 103 T.C. 80 (1994).

Demolition expenses – Government-ordered demolition. The government-ordered demolition or relocation of a home that is unsafe to use because of a disaster may give rise to a deductible casualty loss. Code Section 165(k).

Demonstrators. If a direct seller uses his company's products himself, the cost of the products is a non-deductible personal expense even if he keeps the products on hand to show to potential customers. If the seller uses a product as a demonstrator for one year or less and the demonstrator itself is not available for purchase by customers, its cost is a deductible business expense. If the demonstrator itself can be bought by customers, the seller must include it in inventory. IRS Pub. 911, Direct Sellers.

Dental licensing fees. No deduction is allowed for professional accreditation fees paid to get initial licensing. Reg. Section 1.162-5(b).

Dental treatment. Amounts paid for dental treatment, including fees paid to dentists for x-rays, fillings, braces, extractions, and dentures are deductible as medical expenses. IRS Pub. 502, Medical and Dental Expenses.

Dentures. The cost of artificial teeth is a deductible medical expense. Reg. Section 1.213-1(e)(1)(ii).

Dependents. An individual taxpayer may claim an exemption for his child and for other dependents. Code Section 151(c).

NOTE: A tax credit may be available for amounts paid for the care of a dependent in order to allow the taxpayer to be gainfully employed. Code Section 21.

Depreciation – Automobile. A taxpayer can deduct the portion of depreciation expense for an automobile that is attributable to the use of the automobile in his work as an unreimbursed employee expense subject to the 2 percent floor on miscellaneous itemized deductions if the taxpayer chooses to deduct actual expenses. Heuer v. Commissioner, 94 T.C. 347 (1959).

CAUTION: If the standard mileage rate is used to compute the deductible costs of operating a vehicle, maintenance and repair expenses cannot be deducted separately.

Depreciation – Computer or cell phone. A taxpayer may deduct, as an unreimbursedemployee expense, depreciation (computed under the straight line method), on a computer or cellular telephone used in her work if its use is for the convenience of the employer and required as a condition of her employment. Code Section 280F(d)(4)(A)(iv). A taxpayer who satisfies the employer convenience and condition of employment tests can claim an accelerated depreciation deduction and a Code Section 179 deduction if she uses the computer or cell phone more than 50 percent of the time in her work. Code Section 280F(b)(1). However, the 50 percent test does not apply to a computer used only in a part of the home that meets the requirements for taking a home office deduction. Temp. Reg. 1.280F-6T(b)(5).

Deterioration. Losses incurred as a result of progressive deterioration of property through a steadily operating cause are not due to a sudden identifiable event and thus are not deductible as casualty losses. Rev. Rul. 59-102, 1959-1 C.B. 200.

Diagnostic services. The cost of a diagnostic service qualifies as a deductible medical expense. Reg. Section 1.213-1(e)(1)(ii).

Diamond ring. The accidental loss or disappearance of property may be deductible as a casualty loss if it results from a sudden, unusual, or unexpected event such as the loss of a diamond from a ring when a car door is slammed on the taxpayer's hand. White v. Commissioner, 48 T.C. 430 (1967), acq., 1969-1 C.B. 21.

Diaper service. Diaper service for normal babies is considered a personal expense rather than a deductible medical expense. Rev. Rul. 55-261, 1955-1 C.B. 307. However, the IRS has allowed a deduction for diaper services in the case of a severely brain damaged child who had to be diapered. PLR 8137085.

Direct Sellers. If a direct seller uses his company's products himself, the cost of the products is a non-deductible personal expense even if he keeps the products on hand to show to potential customers. If the seller uses a product as a demonstrator for one year or less and the demonstrator itself is not available for purchase by customers, its cost is a deductible business expense. If the demonstrator itself can be bought by customers, the seller must include it in inventory. IRS Pub. 911, Direct Sellers.

Disability fund - State. Mandatory employee contributions to a state disability fund are deductible as taxes. Rev. Rul. 84-194, 1981-2 C.B. 54.

Disability fund - Private. Employee contributions to a private, voluntary plan that pay disability benefits to any covered employee who cannot work, due to an injury or illness not related to the job, are not deductible as taxes, business expenses, or as medical expenses, but are non-deductible personal expenses. Rev. Rul. 81-194, 1981-2 C.B. 54.

Disability insurance premiums. Personal disability insurance premiums are a personal expense and cannot be deducted as a business expense (Blaess v. Commissioner, 28 T.C. 710 (1957)) or as a medical expense (Kennedy v. Commissioner, T.C. Memo. 1980-310).

Disability pay. If a taxpayer repays sick leave or disability annuity payments received in an earlier year to be eligible for nontaxable Federal Employees' Compensation Act (FECA) benefits, the taxpayer can deduct the amount repaid as a miscellaneous itemized deduction, subject to the 2 percent floor. Rev. Rul. 79-322, 1979-2 C.B. 76.

Disabled access. A taxpayer may elect to treat up to $15,000 of qualified expenditures for the purpose of making any facility or public transportation vehicle owned or leased by the taxpayer for use in his trade or business more accessible to and usable by handicapped and elderly individuals as a deduction rather than as a charge to a capital account for any taxable year. Code Section 190.

NOTE: An eligible small business that pays or incurs expenses to provide access to persons with disabilities in order to comply with the Americans with Disabilities Act of 1990 may claim a tax credit for 50 percent of its eligible access expenditures for the year that exceed $250, but do not exceed $10,250. Code Section 44(a).

Disabled dependent care expenses. Disabled dependent care expenses may be treated as deductible medical expenses, or alternatively as work-related expenses for purposes of claiming the credit for household and dependent care services necessary for gainful employment, but not as both. Reg. Section 1.213-1(f).

Disaster. The government-ordered demolition or relocation of a home that is unsafe to use because of a disaster may give rise to a deductible casualty loss. Code Section 165(k).

Disaster relief contributions. Although contributions earmarked for the relief of a particular individual or family cannot be deducted, taxpayers may deduct contributions made to a qualified organization and earmarked for flood relief, hurricane relief, or other disaster relief. Notice 95-66, 1995-51 C.B. 19.

Discount points – Home mortgage. Points paid by a borrower to obtain a home mortgage are deductible as home mortgage interest in the year paid if payment of points is an established business practice in the area in which such indebtedness is incurred, and the amount of such payment does not exceed the amount generally charged in such area. Code Section 461(g)(2).

CAUTION: Points paid to refinance a mortgage on the taxpayer's principal residence generally are deductible only over the life of the loan. Rev. Rul. 87-22, 1987-1 C.B. 146.

Disease. The death of livestock from disease is not a deductible casualty loss. Rev. Rul. 61-216, 1961-2 C.B. 134. The death of trees or other plants by disease is also not a deductible casualty loss. Burns v. United States, 174 F. Supp. 203 (N.D. Ohio 1959, aff'd per curiam, 284 F.2d 436 (6th Cir. 1960).

Display materials. Baggage charges and transportation costs for sample or display materials may be deductible as unreimbursed employee expenses subject to the 2 percent floor on miscellaneous itemized deductions. IRS Pub. 463, Travel, Entertainment and Gift Expenses.

Display racks. Signs, display racks, and other promotional materials to be used on the recipient's business premises do not count as gifts in applying the $25 limitation on deductible business gifts. Therefore, the cost for them can be deducted as a trade or business expense or an expense for the production or collection of income. Code Section 274(b)(1)(B).

Disputed fees. If the taxpayer contests an asserted liability but transfers money to provide for the satisfaction of the liability, as when a taxpayer transfers money to an attorney's trust account pending resolution of a dispute over attorney's fees, the taxpayer can claim a deduction in the year of the transfer if a deduction would be allowed if not for the dispute. Gale v. Commissioner, T.C. Memo 2002-54

Dividend reinvestment plans. Service charges paid by a subscriber to a dividend reinvestment plan, which permits the subscriber to use his dividends to purchase more shares of stock in the corporation instead of receiving cash, are investment expenses deductible as miscellaneous itemized deductions subject to the 2 percent floor. Rev. Rul. 70-627, 1970-2 C.B. 159.

Dividends tax. A state tax on all on all dividends earned, actually or constructively received, accrued or credited to a taxpayer during the year is a deductible state income tax. PLR 8411079.

Divorce. Although attorney fees relating to divorce generally are non-deductible personal expenses, the expenses of legal advice relating to the tax consequences of a divorce are deductible as miscellaneous itemized deductions subject to the 2 percent floor if the bill specifies how much is for tax advice and the determination of that amount is done in a reasonable way. Rev. Rul. 72-545, 1972-2 C.B. 179. Further, attorney fees are deductible as expenses for the production of income subject to the 2 percent floor on miscellaneous itemized deductions if they are paid or incurred to collect taxable alimony. Reg. Section 1.262-1(b)(7).

NOTE: Alimony or separate maintenance payments (payments made to or for a spouse or former spouse under a divorce or separation decree), may be deductible above the line. Code Section 215(a). This is true even if the payments are made to a foreign recipient who does not have to include the payments in income under a tax treaty. CCM 200251004.

Domestic fraternal society. A contribution to a domestic fraternal society, order, or association, operating under the lodge system, may be a deductible charitable contribution, but only if such contribution or gift is to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. Code section 170(c)(4)

Drivers. An agent-driver or commission-driver engaged in distributing meat products, vegetable products, bakery products, beverages (other than milk), or laundry or dry cleaning services may qualify as a statutory employee who can deduct employee business expenses above the line in computing adjusted gross income, rather than as miscellaneous itemized deductions subject to the 2 percent floor. Rev. Rul. 90-93, 1990-2 C.B. 33.

Drought. Damages due to drought such as a greater than normally anticipated failure of planted tree seedlings, generally are not sudden enough to result in a deductible casualty loss, but may be deductible as a loss due to involuntary conversion. Rev. Rul. 90-61, 1990-2 C.B. 39. However, although damages due to drought generally are treated as progressive deterioration, if the damage occurs relatively suddenly the loss will qualify as a casualty loss. Ruecker v. Commissioner, T.C. Memo. 1981-257.

CAUTION: Drought-related damage generally must be incurred in a trade or business or in a transaction entered into for profit in order to be deductible as a loss. Rev. Rul. 77-490, 1977-2 C.B. 64.

Drug abuse treatment. The cost of treatment, including meals and lodging, at a drug abuse center (Rev. Rul. 72-226, 1972-1 C.B. 96), or at a therapeutic center for alcoholism is a medical expense. Rev. Rul. 73-325, 1973-2 C.B. 75.

Drugs – Medical expense deduction. The cost of legal prescription drugs and medicines is deductible as a medical expense. Code Section 213(b). Amounts paid for medicines that can be bought without a prescription do not constitute deductible medical expenses. Code Section 213(b). Amounts paid to obtain a controlled substance such as marijuana, in violation of federal law, are not deductible medical expenses even if state law permits the use of the substance when purchased with a physician's prescription. Rev. Rul. 97-9, 1997-1 C.B. 77.

NOTE: Although not deductible, the cost of non-prescription drugs can be reimbursed by health flexible spending arrangements (FSAs) and other employer health plans. Rev. Rul. 2003-102, 2003-38 I.R.B. __.

Drugs – Trafficking. No deduction is allowed for any amount paid or incurred in carrying on a trade or business that consists of illegal trafficking in controlled substances. Code Section 280E.

Dry cleaning. The cost of dry cleaning, laundry, and pressing clothing while away from home on business may be deductible as an unreimbursedemployee expense subject to the 2 percent floor on miscellaneous itemized deductions. Rev. Proc. 89-67, 1989-2 C.B. 795.

Dry rot. Damage caused by dry rot is not a casualty loss because dry rot causes damage through progressive deterioration rather than through a sudden event. Hoppe v. Commissioner, 42 T.C. 820 (1964), aff'd, 354 F.2d 988 (9th Cir. 1965).

Dues. No deduction is permitted for amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or other social purposes. Code Section 274(a)(3). Clubs organized for business, pleasure, or other social purposes include but are not limited to country clubs, golf and athletic clubs, airline clubs, hotel clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussion. Reg. Section 1.274-2(a)(2)(iii)(a).

NOTE: A taxpayer may claim an unreimbursedemployee expense deduction subject to the 2 percent floor on miscellaneous itemized deductions for dues paid to professional organizations, chambers of commerce, and similar organizations if membership helps the taxpayer carry out the duties of his job. Reg. Section 1.274-2(a)(2)(iii)(b). These costs may be deducted above the line by an individual if incurred in the practice of a profession not as an employee. Reg. Section 1.162-6.

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Ear piercing. The cost of ear piercing is a not a deductible medical expense. Rev. Rul. 82-111, 1982-1 C.B. 48.

Earthquake. An earthquake may give rise to a deductible casualty loss. Londagin v. Commissioner, 61 T.C. 117 (1973).

Easement. The grant of a conservation easement to a qualified organization gives rise to a charitable contribution deduction, with the value of the easement determined by calculating the difference between the fair market value of the total property before the grant of the easement and the fair market value of the property after the grant. Johnston v. Commissioner, T.C. Memo. 1997-475.

Educational expenses. Educational expenses are in general non-deductible personal expenses. Educational expenses that are required by the taxpayer's employer or the law in order to maintain the taxpayer's present salary, status, or job, or that maintains or improves skills needed in the taxpayer's present work, may be deductible as employee business expenses subject to the 2 percent floor on miscellaneous itemized deductions. Reg. Section 1.162-5(a).

NOTE: Up to $3,000 in qualified tuition and related expenses in 2003 is deductible above the line if the taxpayer’s adjusted gross income does not exceed $65, 000 ($130,000 if filing a joint return). The amount deductible is $4000 in years 2004 and 2005 if the taxpayer’s adjusted gross income does not exceed $65, 000 ($130,000 if filing a joint return), and is $2000 if the taxpayer’s adjusted gross income does not exceed $80,000 ($160,000 if filing a joint return). No deduction is allowed for any expense for which a deduction is allowed to the taxpayer under any other provision. Code Section 222.

Educational expenses - Medical care deduction. While ordinary education is not medical care, the cost of attending a special school for a mentally or physically handicapped individual is a medical expense where alleviation of the handicap is a principal reason for attending the school. Reg. Section 1.213-1(e)(1)(v)(a). A school will be considered "special" when its primary function is to furnish medical care, and education is only incidental to that function. A portion of tuition payments made for attendance at a regular school that provides special programs may also qualify for the medical care deduction. A taxpayer must specifically ascertain and document the cost attributable to medical care (i.e., the portion of tuition directly attributable to the special program that qualifies as medical care). Fischer v. Commissioner, 50 T.C. 164 (1968), acq. 1969-2 C.B. 24.

Education IRAs. No deduction is allowed for contributions to a Coverdell education savings account, or ESA (formerly called an education IRA). Code Section 530.

NOTE: Amounts deposited in the ESA grow tax free until withdrawn, and distributions are not included in the beneficiary's income as long as they are used for qualified higher education purposes. Code Section 530(d)(2).

Egg donor. A medical expense deduction can be taken for egg donor fees and other expenses of obtaining an egg donor so that a taxpayer may attempt pregnancy, including fees paid to a coordinating agency for procuring donor, fees paid to the donor for time and expense, the expenses of medical and psychological testing of the donor, insurance fees to cover medical or psychological needs of the donor, and legal expenses for the preparation of the contract between the taxpayer and the egg donor. PLR 200318017.

Elastic stockings. The cost of elastic stockings is deductible as a medical expense. Cohen v. Commissioner, T.C. Memo. 1951-9.

Electrolysis. The cost of removing unwanted facial hair by methods such as electrolysis, where the removal is due to the taxpayer's personal preference, is not deductible as a medical expense. PLR 8042075.

Elevator. The installation of an elevator, on a doctor's advice, qualifies as a medical care expense, but the medical expense deduction is limited to the cost of the elevator, less the increase in value to the home attributable to the elevator. Reg. Section 1.213-1(e)(1)(iii).

Embezzlement. A deductible theft loss may arise when money or property is taken from a taxpayer through embezzlement. Reg. Section 1.165-8(d); Rev. Rul. 72-112, 1972-1 C.B. 60.

Emergency Energy Programs. Donations to a utility company's emergency energy program are deductible as charitable contributions if the utility company is an agent for a charitable organization that assists individuals with emergency energy needs. Rev. Rul. 85-184, 1985-2 C.B. 84.

Eminent domain. Although the compulsory or involuntary conversion of property by seizure, requisition, or condemnation, or as the result of the threat or imminence or requisition or condemnation, generally produces taxable gain, the recognition of which may be deferred under certain circumstances (Code Section 1033), it also may give rise to a deductible loss. PLR 200014042.

Employee expenses. Unreimbursedemployee expenses, which are ordinary and necessary expenses paid during the tax year for carrying on the taxpayer's trade or business of being an employee that are not reimbursed by the taxpayer's employer, are deductible as miscellaneous itemized deductions subject to the 2 percent floor. Reg. Section 1.67-1T(a)(1)(i).

CAUTION: If a taxpayer is eligible to be reimbursed for an expense from his employer, but fails to make a proper claim for reimbursement, the expense is not deductible. Stolk v. Commissioner, 40 T.C. 345 (1963), affd., 326 F.2d 760 (2d Cir. 1964).

Employment agency fees. Employment and outplacement agency fees paid in looking for a new job in the taxpayer's present occupation are deductible as unreimbursedemployee expenses subject to the 2 percent floor on miscellaneous itemized deductions. Cremona v. Commissioner, 58 T.C. 219 (1972).

CAUTION: A taxpayer who has a substantial break between the time of her former job and looking for a new one cannot deduct job search expenses because she is no longer engaged in a trade or business. Rev. Rul. 75-120, 1975-1 C.B. 55.

Employment taxes - Household employees. The employment taxes paid for household employees are not deductible because they are not taxes imposed on the taxpayer. Reg. Section 1.164-1(a).

Entertainment. A deduction for entertainment expenses is allowed only if the entertainment is either directly related to or associated with the active conduct of a trade or business. Code Section 274(a)(1). The deduction is limited to 50 percent of the taxpayer's otherwise deductible business-related entertainment expenses. Code Section 274(n).

Entertainment facilities. Generally no deduction is allowed for the costs of using an entertainment facility such as a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, apartment, hotel suite, or home in a vacation resort. Code Section 274(a)(1)(B).

Erosion. Because damages caused by erosion occur over an extended period of time and are not due to a sudden, unexpected event, they generally are not deductible as casualty losses. Carr v. Commissioner, T.C. Memo 1979-400.