Buddha44
Dryer sheet aficionado
retire@40 said:Because you'd be in violation of Rev Rul 56-407
Rev Rul 56-407 applies for purposes of computing self employment income and self employment tax (people wanted to pay some self employment tax so they could get credit for social security purposes).
I would not say that it is "illegal" not to claim deductions to which you are entitled to. I am not aware of anything that compels a taxpayer to do so for purposes of computing taxable income. Of course, you cannot claim it in a different year so you essentially forego it, and if it is depreciation, there are rules that state that depreciation which is "allowed or allowable" are treated as deducted.
I recall a court case on Section 183 hobby losses which the IRS lost where a profit of $1 counted as a profitable year for purposes of the 3 out of 5 year test. However, the fact that $1 of profit was generated was not in dispute.
Having said that, to deliberately not take a deduction so that you generate a minimal profit in order to qualify for the 3 out of 5 year test and take a significant loss in another year is a separate issue. Here, the intent of not taking a deduction is for purposes of taking additional deductions in another year. I would suspect that the IRS would certainly have a problem with that.
My Circular 230 disclaimer follows:
The following is not tax advice and any U.S. federal tax advice included in this communication was not intended to be used, and cannot be used, for the purpose of avoiding U.S. federal tax penalties.