Date: September 11, 2015 Preparer: Antonio Perez-Lara Subject: Deductibility of Work Clothes Facts: Brittany works as wardrobe consultant at Expensive Fashion, Inc., a retailer of expensive women’s clothing. For work, she is required to purchase and wear expensive designer outfits. But when she is not at work, Brittany does not wear the expensive outfits because the outfits are not to her taste. Instead, she wears casual clothes that she often purchases at Wal-Mart. Issue: Can Brittany deduct the costs and upkeep of the designer outfits she is required to wear on the job? Authorities: IRS Sec. 162(a) IRS Sec. 262(a) Rev.Rul. 70-474,1970-2 CB 34 Donnelly, 59-1 USTC ¶9196 (2nd Cir., 1959) Stiner, 75-2 USTC ¶9762 (10th Cir., 1975) Pevsner, 80-2 USTC ¶9732 (5th Cir., 1980) Conclusion: Although Brittany’s expensive clothing is required as a condition for employment, she cannot deduct her work clothing as a business expense because she is not prohibited form using the clothes in her ordinary lifestyle. Analysis: IRS Sec. 162(a) states that all expenses classified as ordinary and necessary incurred for the purpose of the trade or business are deductible. IRS Sec. 262(a) imposes a limit on Sec. 162(a) to the extent that such expenses cannot be categorized as “personal, living, or family expenses.” The dilemma in this situation is whether the expensive clothing purchased by Brittany is categorized as ordinary and necessary for business purposes or as a personal expense. In revenue ruling 70-474, the IRS updates and restates that acquisition and maintenance of uniforms are deductible in the year paid if the uniforms are required by employment and not fit for ordinary wear. The interpretation of the rule is that in order to deduct the uniform expenses taxpayers need to meet full criteria not only because the uniforms are required by employment the costs are instantly deductible, but also the taxpayers must substantially demonstrate that the uniforms are not fit for ordinary wear. For instance, In Donnelly, the 2nd circuit court ruled that in order to deduct work clothing as a business expense, it must be considered to be a condition for employment and not be adaptable for ordinary wear. Following this judgment, in Stiner, the 10th circuit court ruled that accessories required for work that are suitable for general purposes other than work are considered to be ordinary in nature and, therefore, are nondeductible. Similar to Stiner, in Pevsner, the 5th circuit court followed the ruling of Donnelly, deliberating that the taxpayer did not meet the requirements for a business deduction. Since the expensive outfits, which the taxpayer was required to use while at work didn’t have any restrictions preventing her using them in her ordinary life the court decided that the outfits were easily adaptable for ordinary wear. Therefore, the 5th circuit court denied the taxpayer’s deduction for the full amount. The basis in Pevsner, is very similar to Brittany’s basis both of the taxpayers work in the same industry, they were required to purchase and wear expensive clothing while at work, and neither had any restrictions on using the outfits in their ordinary lives. Given the similarity in facts between Brittany and those in Pevsner, substantial authority rejects a current deduction for the purchase and maintenance of the expensive outfits.