Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: TUESDAY, March 24, 1992                   TAG: 9203240144
SECTION: BUSINESS                    PAGE: A-5   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

HIGH COURT TO RULE ON IN-HOME OFFICES

The justices will review a 4th U.S. Circuit Court of Appeals ruling that allows many more taxpayers to claim as deductions the expenses of maintaining an office in their homes.

The ruling was challenged by the Internal Revenue Service, which says "many thousands of individuals" are affected by the case.

The federal tax code says home-office expenses may be claimed as income tax deductions only if the home is a "principal place of business."

The case originated with Nader Soliman, a self-employed anesthesiologist who uses a spare bedroom in his McLean home as his office. On his federal income tax return for 1983, Soliman claimed deductions for condominium fees, utilities and depreciation attributable to his office.

The IRS disallowed the deductions, holding that the home office was not Soliman's principal place of business.

In 1983, he had practiced at Suburban Hospital in Bethesda, Md., Shady Grove Adventist Hospital in Rockville, Md., and Loudoun Memorial Hospital in Leesburg, Va. At each, Soliman administered anesthesia and provided other services for patients. He spent 30 to 35 hours a week at the three hospitals, about 80 percent of that time at Suburban.

But none of the hospitals provided him with an office.

Soliman used his home office to keep patient records, correspondence, billing records, medical journals and texts. He worked two to three hours a day there - keeping records, preparing for treatments and speaking by telephone with surgeons.

After his deductions were disallowed, Soliman sought review in the U.S. Tax Court. It ruled he could claim the deductions.

The court said a taxpayer's home office should be considered the principal place of business if it is "essential to his business, he spends substantial time there and there is no other location available to perform the office functions of the business."

The 4th U.S. Circuit Court of Appeals in Richmond upheld the Tax Court's decision in a 2-1 ruling that set a legal precedent for Virginia, Maryland, West Virginia, North Carolina and South Carolina.

But the 9th U.S. Circuit Court of Appeals - in a ruling that set a precedent for nine Western states - rejected the tax code interpretation accepted by the 4th Circuit court.

The justices were told that the appeals court ruling in Soliman's case, if left intact, was likely to precipitate numerous new claims for home-office deductions.

"For example, any teacher who lacks after-hours access to school facilities might argue that he is entitled to deduct the expenses of maintaining an area at home exclusively used for grading papers or planning lessons," the IRS appeal said.