Tuesday, May 10, 2016
NO CLOTHING DEDUCTION FOR WEARING RALPH LAUREN CLOTHING
NO CLOTHING DEDUCTION FOR WEARING RALPH LAUREN CLOTHING In Barnes, TC Memo 2016-79 (Apr. 27, 2016), the Tax Court has held that a salesman for Ralph Lauren who was required to wear Ralph Lauren branded clothing at work could not deduct the cost of the clothing for federal income tax purposes as unreimbursed employee expenses. Since the Tax Court found that the clothing was clearly suitable for regular use, the Court denied the deduction and imposed penalties on the salesman as well. By way of background, pursuant to I.R.C. Sec. 262, a taxpayer generally cannot deduct personal, living, or family expenses. But, I.R.C. Sec. 162(a), does permit a deduction for all ordinary and necessary expenses paid or incurred in carrying on any activity that constitutes a trade or business, which may include the trade or business of being an employee. Primuth v. Comm., 54 T.C. 374, 377 (1970). Clothing expenses are generally nondeductible expenses under Code Sec. 262 even though the clothing is worn by the taxpayer in connection with his trade or business, unless: (1) the clothing is required or essential in the taxpayer's employment; (2) the clothing is not suitable for general or personal wear; and (3) the clothing is not so worn. Hynes v. Comm., 74 T.C. 1266, 1290 (1980) There was also a 20% accuracy-related penalty applied pursuant to I.R.C. Sec. 6662(a) since there was an underpayment of tax attributable to negligence, disregard of rules or regulations. The Court found there was no reasonable cause for the understatement so the exemption from the penalty under I.R.C. 6664(c)(1) did not apply. The Tax Court ruled that it has consistently applied the 3-part test for clothing deductibility and that Ralph Lauren clothing clearly fails the test.