Tax Court Disallows Deductions for Bowling Activities

Here’s a post that covers an fun tax issue: the deductibility of bowling expenses.  On September 10, 2013, in Phillips v. Comm’r, a Tax Court Memorandum, the U.S. Tax Court addresses these issues.

In this case, Mr. Phillips was a U.S. postal worker who was also a bowler.  Between 2000 and 2008, his annual gross winnings from bowling ranged anywhere from $0 to $50,000.  He testified that he incurred approximately $30,000 annually from expenses from bowling.  From 2001 to 2008, these expenses exceeded his gross winnings.   In 2008, on his Schedule C to his Form 1040, Mr. Phillips reported $0 gross receipts and $28,243 of expenses from the “business or profession” of bowling.

As a side note, the Tax Court adds that Mr. Phillips’s tax-return prepare refused to sign the 2008 Form 1040 because he was afraid of an audit.  The IRS alleged a deficiency of $3,437 for 2008.  To make a long story short, Mr. Phillips provided the IRS and the Court meager evidence that he was in the trade or business of bowlng and that he was entitled to the deductions on the Schedule C.  In fact, the court found that Mr. Phillips created and kept no records regarding his 2008 bowling activities and expenses.

The Court addresses two substantive issues:

(1) Whether Mr. Phillips had a profit motive for his bowling activities; and

(2) Whether Mr. Phillips would be entitled to any of the Schedule C deductions.

With regard to issue 1, the bowling expenses were only deductible if Mr. Phillips had a profit motive.  See IRC § 183(a).  The Court addresses the nine factors in Treasury Regulation § 1.183-2(b) to be considered when determining whether an activity is engaged in for profit.  It held that none of the factors weigh toward the existence of a profit motive.  Instead, all the relevant factors weigh against the existence of a profit motive.

With regard to issue 2, the Court stated that if a profit motive for Mr. Phillips’s bowling activities existed (which it did not), Mr. Phillips could deduct ordinary and necessary expenses of bowling.  Nevertheless, the court held that, in addition to the lack of profit motive, Mr. Phillips did not provide adequate records to substantiate these deductions.

Lessons Learned from This Case:

1) In order to take and maximize deductions, establish a proper profit motive.

2) Keep adequate records.


Want to further discuss these issues?  Contact me at 954-944-3929 or nrumbak@rumbaklaw.com.

*This document contains legal information, but does not contain legal advice.



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