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I thought I would ratchet up the humor today. However, I left it open ended.

I agree. If he has a desk, he needs a chair. I don't think the massage feature will qualify or disqualify it as a business deduction. Surely an auditor wouldn't compare what he paid for it against an Office Depot $59 special. Last time I visited a lawyer, I'll bet the chair he was sitting in cost more than all the furniture and desks in my office. I doubt he was worried about losing the deduction in an audit.

I got this from Catherine, when she shared this on Facebook, it's so valuable I just had to share it here.

LOVE IT

Well, not the way I read it. If "they paid the caryring costs" means they paid all the payments & incident of ownership, AND if they paid all or part of the down payment, then they are equitable owners. They would be eligible to deduct the property taxes & interest, and MIGHTY be able to use the Sec 121 exclusion if there were a gain large enough for it to matter. But the adiditonal info Catherine provided pretty well put that line of reasoning to bed.

Copied from Forbes: Robert W. WoodThe IRS statute of limitations is usually 3 years to audit or make an assessment. There are many exceptions from this rule that give the IRS 6 years or longer. And once an assessment is made, the IRS collection statute is normally 10 years. Incredibly, in some cases the IRS can go back 30. In Beeler v. Commissioner, the Tax Court held Mr. Beeler responsible for 30 year-old payroll tax penalties. That may sound crazy, but sometimes, the IRS has a memory like an elephant. And it can come down like an elephant on top of you, too. Don’t pay your income taxes and the IRS will come after you. But fail to pay payroll taxes and the IRS can push even harder. Payroll taxes involve withholding tax money from employee wages. Employers must hand it over to the IRS. “Responsible persons” have personal liability even if they are employees themselves and don’t own any part of the business. Section 6672 of the tax code puts a 100% penalty on responsible persons who fail to withhold, or who withhold but fail to hand it over to the IRS. What’s more, this penalty can be assessed against more than one responsible person. IRS can collect only once, but it can come after them all and see who coughs up the money first. Joel Beeler, Stuart Ross, and Robert Liebmann were all officers of Equidyne Management, a company that failed to pay employment taxes way back in 1982. The company fell on hard times, and so did some of the officers. In fact, Ross filed for bankruptcy in 1983. The IRS assessed the 100% penalty against all responsible officers in 1985. Ten years later, in 1995, there was a settlement between the IRS and creditors. The IRS collected $80,860 on Ross’s behalf in that settlement. The IRS also got judgments against Beeler ($154,032), Ross ($117,484), and Liebmann ($153,985). Liens normally last 10 years, giving the IRS time to collect. But in 2001, the IRS made a mistake and released its tax lien. It was years later when the IRS discovered its mistake. At that point, the IRS went after Beeler. The Tax Court agreed the IRS could collect from Beeler. However, on appeal, the Second Circuit ordered the Tax Court to determine whether Ross or Liebmann might have paid it. After all, with 3 officers, and 100% assessed against all 3, if one paid the other 2 would be off the hook. Given the IRS errors, the Tax Court said the only fair thing was to put the burden of proving that neither Liebmann nor Ross paid the amount on the IRS. The IRS satisfied the Tax Court, so Beeler was still on the 30 year-old hook, stuck paying taxes from 1982! Beeler’s only consolation? The $80,860 the IRS collected from Ross, which the Tax Court offset against Beeler’s penalty. The moral of this mess? Pay your payroll taxes. If you can’t handle it in-house, hire a payroll service so you won’t have any discretion about it. If you aren’t an owner, try to avoid check signing authority. If you can’t avoid it, get a written indemnity, and make sure payroll taxes are always paid

Joan: Yes, claiming the Sec 121 exclusion would be the ideal outcome. I didn't go there because Catherine called it a small gain, coupled with the fact that the whole situation might be shaky anyhow. I think even the "beneficial owner" matter might be in jeopardy if the kids didn't pay all or part of the down payment, even if they made all the loan payments & upkeep of the residence. So depending upon how that played out, it might be worth foregoing the Sec 121 exclusion in order to hopefully avoid IRS deciding to take a closer look and potentially invalidating 3 years' worth of interest & property tax deductions on the kids' returns. Of course, the decision depends on how much the "small" gain really is and thus how much tax is at stake in total. Catherine clarified things when she said mom is OK paying the tax. In this case I think I'd just treat it as a second residence, report the gain on Schedule D/8949, and call it a day.