By Mark Aquilio, CPA, J.D., LL.M.
The Tax Court ruled that a corporation was not entitled to its claimed deduction for rent paid to its sole shareholder and employee for using part of his personal residence as an office. The court noted that the corporation did not produce any evidence of a written lease or other documentation indicating that the amounts were actually rent. Also, the shareholder did not treat the arrangement as a bona fide rental arrangement, as he did not report any rental income for the residence.
Facts: Christopher Ng, a physician, formed Christopher C.L. Ng M.D. Inc. and was its only shareholder and employee. Ng's personal residence in Los Angeles was the corporation's business address. The second story of the residence was used solely for the corporation's business. Ng used it as a workspace to perform administrative tasks for the corporation and to complete continuing education training and medical board certification activities.