Let’s not kid ourselves, it was only a matter of time before toilet humor made its way onto this blog. In my defense, however, the facts of Bulas v. Commissioner, T.C. Memo 2011-201 practically forced me to do it.
Balas was an accountant who prepared returns out of his home. Balas used one of the bedrooms in his residence as an office for the accounting business. To aid those clients who felt the need to heed nature’s call while handing over their shoebox full of receipts, Balas built a bathroom that was separated by a hallway from the bedroom/office.
Section 280A(a) provides the general rule that no deductions are allowed with respect to the use of a taxpayer’s personal residence. Section 280A(c), however, provides an exception to this general rule for a qualified “home office.” Under this exception, if a portion of a personal residence is used exclusively and on a regular basis as either 1) the principal place of business for a trade or business or 2) a meeting place for patients, clients or customers, then deductions related to that portion of the residence are permitted.
While the Tax Court conceded that Balas used the bedroom both exclusively and on a regular basis for his accounting business, they took issue with the bathroom and hallway. It seems Balas testified that his kids and guests had on occasion used the bathroom, presumably after Enchilada Night at the local Tex-Mex.
As a result, the court concluded that Balas did not use the bathroom and hallway exclusively for his trade or business, and denied the deductions related to that portion of the home.