Don't ask the

IRS to foot all your business entertainment expenses, no matter how well-known

your group or your purpose. As a general rule, only 50 percent of qualified

business entertainment expenses are deductible and these expenses must

be well-documented.

Churchill Downs,

the Kentucky Derby venue, asked for an exemption and got denied. It had

spent almost $400,000 over a two-year period to host dinners, cocktail

parties, press breakfasts and other promotional events. It then claimed

it was not required to reduce the expenses by 50 percent. Churchill Downs

took on the IRS and lost. (Sixth Circuit Court of Appeals, Churchhill

Downs, Inc.: CA-6, No. 01-1274)

The tax law

provides some relief to low-income wage earners, but the rules are complex.

In one case, a child living with his mother supported his younger siblings

on his machinist's wages of $14,100.

He claimed

an Earned Income Credit (EIC) with respect to the children. Generally,

to qualify for the credit you must work and have earned income below certain

thresholds, be between the ages of 25 and 65, and be a U.S. citizen. If

you are claiming qualified children, you must have lived in the primary

residence with the children for at least six months.

The sibling

claiming the EIC met the age, residency and income tests. However, the

IRS claimed that his brothers and sisters were not "qualifying children."

The Tax Court disagreed and ruled in the sibling's favor. The Tax Court

pointed out that the working sibling shared parental duties, including

financial ones, with his mother and assumed the role of a father figure.

(Your Income Tax, 25.12, Rafael Barajas, TC Summary Opinion 2002-59)

The IRS has

strict rules regarding medical deductions. You can only deduct qualified

medical expenses that exceed 7.5 percent of your adjusted gross income.

Qualified expenses typically do not include cosmetic surgery. One taxpayer

was able to claim a deduction for liposuction, but only because she convinced

the IRS she had a valid medical reason.

The taxpayer

was employed as a hospital emergency room nurse. Without surgery, she

lost more than 100 pounds. But as a result of her weight loss, she had

a "mass of loose-hanging skin" which interfered with her ability

to bend and perform her professional responsibilities. She had three liposuction

surgeries and then claimed the cost as a medical expense.

The IRS disallowed

the write-off, saying it was "cosmetic." However, the Tax Court

overruled that decision and allowed the deduction, stating that "obesity

is well recognized in the medical community as a serious disease."

The surgeries qualified under tax law. (Al-Murshidi, TC Summary Opinion

2001-185)

Generally unreimbursed

employee education expenses that help you perform your current job are

deductible as a miscellaneous itemized deduction. If you try to deduct

the expenses associated with preparing you for a new job, the IRS will

ask you to pay for the cost.

In a recent

case, a law librarian, with 25 years of experience in the field, obtained

a law degree. She deducted the expenses associated with law school saying

it was relevant to her work as a legal librarian. However, the IRS did

not allow the deduction as the education qualified her for another line

of work.

During tax

season you may hear lots of stories about large tax breaks given to some

taxpayers. CPAs point out that in many cases these are just "tall

tales" and the truth is somewhere in between. If you have questions

about the tax breaks you deserve or think you have a case to dispute the

IRS, contact a CPA for professional advice.

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