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When Your Business Expenses Are Really Personal

When Your Business Expenses Are Really Personal

Feb 14 2014, 5:13am CST | by

If an employee is sued on the job, the employer will be too. Say a delivery driver has an accident on his route. The company and the driver will be sued. But what if a supervisor sexually harasses...

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23 weeks ago

When Your Business Expenses Are Really Personal

Feb 14 2014, 5:13am CST | by

If an employee is sued on the job, the employer will be too. Say a delivery driver has an accident on his route. The company and the driver will be sued.

But what if a supervisor sexually harasses an employee? This conduct may be personal, but it arises out of a working relationship and may involve company property and business trips. In both cases, the company usually covers legal bills and settlements.

Sometimes the IRS points an accusing finger at corporate conduct and denies tax deductions. Even if the company is a named defendant, it may not be enough to make a settlement payment–or even legal fees–tax deductible. That’s what happened in Cavanaugh v. Commissioner .

James Cavanaugh was CEO and sole shareholder of Jani-King, a successful janitorial-services franchisor. He vacationed in St. Maarten one Thanksgiving with his girlfriend, Jani-King employee, Claire Robinson. It wasn’t a business trip, but they were accompanied by Cavanaugh’s bodyguard, and another Jani-King employee.

While on the trip, Robinson suffered fatal cardiac arrest after ingesting a large amount of cocaine. Her mother sued Cavanaugh and Jani-King. Jani-King’s board worried that losing the case would trigger a backlash from franchisees so settled for $2.3 million. Cavanaugh contributed $250,000, which Jani-King reimbursed. Jani-King deducted it all as a business expense.

The IRS challenged the deductions, but the Tax Court agreed with the IRS. See Which Corporate Lawsuits Are Personal and Nondeductible?  Why? The employees were on vacation, not Jani-King business, and were far from company property.

The courts have allowed business deductions where the claims are at least part business, as in Kopp’s Co. v. United States . There, a company deducted a settlement after the CEO killed a child in a company car on the way to the office. But Cavanaugh’s case was different.

For Cavanaugh, only the consequences of the suit–not its origin–were business-related. Even naming Jani-King as a defendant didn’t automatically make legal fees or settlement costs deductible. The deductibility of Jani-King’s payment turned on the claim (that Jani-King employees negligently provided illegal drugs resulting in Robinson’s death) and whether its origin lay in Jani-King’s business.

Here are some cases where deductions were allowed despite personal conduct:

You can reach me at Wood@WoodLLP.com . This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

Source: Forbes Business

 
Update
10

7 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

7 weeks ago

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Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was broken ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

7 weeks ago

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Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by the Dewan Rakyat today. ...
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Update
7

7 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Datuk Seri Hishammu ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 mill ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minister Datuk Seri ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allocation of RM20 m ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Bazaar S ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

8 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Damansara Skyw ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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