SUPREME COURT CRACKS DOWN ON TAX BREAKS FOR HOME OFFICES

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

DATE: WEDNESDAY, January 13, 1993                   TAG: 9301130081
SECTION: NATIONAL/INTERNATIONAL                    PAGE: A2   EDITION: METRO  
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium
SUPREME COURT CRACKS DOWN ON TAX BREAKS FOR HOME OFFICES
Taxpayers hoping to claim deductions for home offices received discouraging news from the Supreme Court on Tuesday.
An 8-1 decision, which could affect thousands of people in such jobs as sales, accounting or teaching, said taxpayers generally may not take home-office deductions if they spend the majority of their workdays elsewhere.
The court did not create a hard-and-fast rule. But it said the validity of a home-office deduction hinges on "two primary considerations - the relative importance of the activities performed at each business location and the time spent at each place."
The federal tax code says home-office expenses may not be claimed as income tax deductions if a taxpayer works elsewhere. But the code makes an exception for a home office "exclusively used on a regular basis [as] the principal place of business."
Lower courts had reached conflicting decisions on the legal definition of "principal place of business."
The 4th U.S. Circuit Court of Appeals in Richmond, Va., devised a comparatively lenient definition in ruling for 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 the home office. The Internal Revenue Service disallowed the deductions.
The tax agency said the office was not Soliman's principal place of business, noting he spent most of his workweek practicing at two hospitals in Maryland and one in Virginia.
None of the hospitals provided Soliman with an office. He used his home office to keep patient records, correspondence, billing records, medical journals and texts.
The 4th Circuit Court ruled that the IRS must allow Soliman's deduction because his home office "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."
Writing for the high court Tuesday, Justice Anthony Kennedy said the appeals court was wrong. The lack of any other available office "has no bearing on the inquiry whether a home office is the principal place of business," he said.
Justice John Paul Stevens dissented, and called the decision "most unfortunate."
Stevens said it would "breed uncertainty in the law . . . and unfairly penalize deserving taxpayers."
In other cases, the court:
Ruled that even organizations claiming to be broke must pay court costs when they sue in federal court. The 5-4 ruling was a setback for a California prison inmates' group.
Made it easier for states and state agencies to seek immunity against being sued in federal courts.
Ruled in a Maine case that retired shipbuilders and dock workers are entitled to the same disability benefits that active employees receive for work-related deafness.

by Bhavesh Jinadra by CNB