Sunday, July 31, 2005

The tax man blues

The August 15, 2005 issue of Forbes Magazine reports that performer Wayne Newton and his wife owe the IRS another $1.7 million in taxes and penalties for the tax years 1997 through 2000.
The feds say he omitted income, took improper deductions for mortgage interest, maintenance and security at his residence, and shouldn't have written off a $51,950 loss on the sale of two antique cars. In a just-filed U.S. Tax Court lawsuit with wife Kathleen, Newton, 63, said many of the disputed items were justified by a business need to maintain "an image of larger-than-life glamour, sophistication and elegance."
The "business need to maintain an image..." is what's really intriguing. Certainly Newton could argue that the persona he has created helps fill the venue for his Las Vegas shows. And while this image of flamboyance and opulence is nice, he'd really rather not live such a lavish lifestyle, but gee, he simply must. It's part of the marketing strategy.

If the U.S. Tax court buys Newton's argument, it will open the door to any professional who spends money to maintain an image. Doctors, lawyers and corporate CEOs could start deducting the costs of expensive homes and European sedans as business expenses. After all, how comfortable would you be with a neurosurgeon who drives a ten year-old Toyota Corolla or a financial advisor who lives in a run-down house in lousy part of town?

Newton, who filed for bankruptcy in 1992, puts his average annual income for the four year period at $790,000. The IRS thinks it's at least twice that amount. I wonder if he's including royalties from "Ferris Beuller's Day Off"?

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