Searchlight, Nevada

When unhappy with his press release, Ralph rewrote it and sent changes to Northwest. When dissatisfied with Northwest’s marketing, he wrote demanding that they comply with the terms of their agreement.

By letter dated January 22, 1996, Northwest’s account executive told Ralph that 6,800 copies of Searchlight, Nevada had been ordered and shipped. It didn’t say who placed the orders or where they shipped them, but said that another 2,500 copies had been ordered by the chain Books A Million. Northwest promised royalty statements in about three weeks.

On his 1996 Form 1040, Ralph reported $2,600 in gross royalties from his writing activity.

In late 1993, after signing with Northwest for Searchlight, Nevada, Ralph began researching Nevada Nights, San Joaquin Dawn. He wanted to document the difficulties that women face when attempting a break from prostitution. “The story’s never been done before to any degree of authenticity,” he said, explaining that he thought it was commercially viable.

Ralph, however, had learned that rooms at brothels were equipped with listening devices. Therefore he met prostitutes at other locations on “out calls,” paying by credit card. In 1994, during January, February, April, May, June, and July, he spent from one to six days a month in Nevada on “out calls.” He successfully encouraged ten prostitutes to leave their profession. As of his trial, he hadn’t finished Nevada Nights, San Joaquin Dawn.

Some time after signing with Northwest on Searchlight, Nevada, Ralph submitted the 450-page Lightning at Dawn. He thought that Northwest only required a joint venture payment for first novels, and so if Northwest agreed to publish Lightning at Dawn, he’d not have to pay anything. He also tried marketing Boys and Girls Together, but stopped when he was told that there was no need or market for that type of short stories at the time.

Making the Deal and Working It

Ralph and Northwest reached an agreement for publication of Searchlight, Nevada on October 13, 1993. This agreement had Ralph paying Northwest $4,375 to publish ten thousand copies. Northwest’s marketing director wrote Ralph confirming receipt of Ralph’s money and described it as a “joint-venture payment.” The company’s operations officer explained via letter that Ralph’s payment represented about a fourth of production and marketing costs for ten thousand copies.

The agreement required Northwest to give a hundred “free” copies to Ralph and two hundred to major bookstores and book reviewers, to sell 2,500 copies through its “test market program,” and to sell the remaining books in the retail marketplace.

Ralph was to get forty percent of the retail amount of each book sold through the test market program and a royalty of fifteen percent of the retail price of remaining books sold to bookstores and wholesalers.

Northwest was expected to pay royalties January 31^st and July 31^st each year along with interest for late payments. It would do a certain amount of sales promotion, advertising, and publicity. It was to have exclusive rights to the book.

Northwest representatives told Ralph that his book would probably earn him at least $20,000 in royalties.

Northwest published and released the 131-page Searchlight, Nevada in December 1995 with a retail price of $7.95. The book went on sale at Barnes & Noble Booksellers in Boynton Beach, Florida, and Falls Church, Virginia, and at Super Crown Books, store #106. People could also acquire it in Bailey’s Crossroads, Virginia, by special order through Borders Books and Music.

Prior to its release, Ralph worked in all stages of publication. In 1994, having reviewed its galley proofs, he asked about adding two chapters. By letter at the end of February 1995, he suggested cover designs and attached pictures, showing how he thought characters on the cover should look. He promised to provide any additional assistance he could, saying that he realized the cover design equaled the storyline in importance. It didn’t matter if the story was good if readers failed to buy it. Optimistic about the joint venture, he believed they’d have a “hot seller” and sell over 100,000 copies.

Ralph gave Northwest’s public relations department mailing lists and telephone numbers of bookstores, newspapers, magazines, and radio and motion picture companies. On his own, he mailed about sixty complimentary copies of the book along with individualized letters to bookstores, newspapers, magazines, and hotels. He worked with Northwest’s marketing expert to get it stocked with distributors and to set up book signings at major bookstores.

The Adventures of Two Men Who . . .

Ralph resolved to write a story about the adventures of two men who travel across the country to patronize Nevada brothels, where such establishments are—ahem—legal. In early 1993, Ralph drafted an 18,000-word basic storyline. He submitted his draft along with Lightning at Dawn and Boys and Girls Together in June for copyright protection. Ostensibly to make the story realistic and to develop characters with fidelity, Ralph visited numerous legal brothels in Nevada as a “customer.”

I can hear cogs in your mind working. If you’re like most, you’re saying, “Never mind telling me about deducting traveling expenses for going to Vietnam to obtain motorcycle pictures for a picture book.” A more vital question is: could Ralph deduct those costs? Well, we’ll see.

Ralph wrote in his journal. Note that, to Ralph’s credit, he kept a non-financial contemporaneous record. He wrote about his personal experiences at these—excuse me—whorehouses. He chronicled which bordellos he visited, the dates and even, sometimes, the hours.

Ralph’s notes described prostitutes he met and the amounts of lucre he paid. For each journal entry, Ralph wrote about these visits, about what happens at cathouses (Like people don’t know?). For instance, Ralph described selecting his strumpets, the “house rules,” negotiating prices for a gal’s time, their discourse—yes, discourse, not some other course—and the ladies’ clothing. He included personal information on his courtesans, including age, physical characteristics, place of residence, religion, ethnicity, education, and names and ages of offspring.

Ralph’s journal indicates that, at some point during said encounters, he told the demimonde he was writing a book about Nevada’s bordellos. He wanted to use them as characters.

The journal shows that during 1993 Ralph spent about three days a month—except in February, May, and December—meeting prostitutes at brothels. Using materials so gathered, he produced Searchlight, Nevada.

Anxious to sell his work, Ralph consulted the 1993 Writer’s Market. There he read about Northwest Publishing, Inc. Northwest’s entry stated that it published hardcover, trade paperback, and mass market originals and reprints, between forty and fifty titles a year on seven to eight hundred queries and five hundred manuscripts a year. Some eighty-five percent of said manuscripts came from first-time authors and ninety-five percent came from unagented writers. Northwest said that it paid a ten to fifteen percent royalty on retail price, publishing books four months after acceptance of submitted manuscripts.

Some of the Facts

Ralph, like me, had worked for the Treasury Department, although he didn’t work for the IRS, which is an agency within Treasury. His work as a budget analyst followed his graduation from the University of Maryland with a bachelor’s degree in marketing and advertising, augmented by twenty-four credit hours of English, journalism, and speech.

He retired from Treasury in January 1997 with 35 years of service. Part of his job (one of six critical elements) required him to “write budget justifications, procedures, and other written material by applying professional-level writing ability to create high-quality written work.” (Certainly Ralph wouldn’t have had the subject matter to write much of a thriller, but maybe he had a sense of humor. It was a bureaucracy, after all.)

Just before Ralph retired, his manager rated Ralph’s performance “outstanding” in this “writing” element. “Outstanding” exceeded “excellent” under this system. Go figure.

Anyway, in Ralph’s employment, “excellent” meant writing budget justifications, statistical reports, procedures, guidelines, and other written materials clearly, concisely, and correctly. It included:

•      Using excellent grammar and spelling.

•      Communicating ideas effectively, especially narratives.

•      Presenting ideas clearly so recipients asked few follow-up questions.

•      Structuring paragraphs and sentences correctly.

•      Working independently in drafting material and seeking guidance only when goals changed.

•      Recipients receiving well and acting upon the written budget justifications.

•      Doing only one revision per finished product.

Our man Ralph did even better than all of that since he received “outstanding” ratings. It was like getting an “A” plus-plus, I guess.

Ralph’s office staff, mostly accountants, used Ralph to do their writing. He contributed to a comprehensive agency-wide report in which agencies evaluated internal control and accounting systems. He edited the in-house newsletter of Treasury. So Ralph brought writing skill and experience to the table.

In 1992, about two years before he was eligible to retire, Ralph started writing outside his Treasury job. Fearful of retirement, he told the IRS and the court that he had hoped to make writing a second career. His first book-length manuscript of fiction was Lightning at Dawn. Later that year he wrote a collection of short stories called Boys and Girls Together. Before marketing these manuscripts for publication, he had an idea for another book.

Now what I’m about to tell you may seem incongruent for a bureaucrat like Ralph who worked for Treasury with a bunch of accountants writing staid budget proposals. He was at least fifty-five years old, maybe older.

Don’t be too surprised.

Tune in next time for a shock.

Venting Frustration by Turning the Tables

You know, there’s a plethora of wisecracks about tax auditors. For instance, one says that the Postal Service just recalled its newest stamps because they picture famous IRS agents on them. People couldn't figure out on which side to spit. Another witticism asks, “What do you call twenty-five IRS agents buried up to their chins in cement?”

“Inadequate cement.”

Venting frustration through humor makes sense. An additional way to vent is to turn the tables on a tax auditor with solid documentation of your hard work and preparation, enabling you to claim a few of the tax perks for self-employed persons. Of course, the ruling administration always claims that the IRS is simply liberating people—primarily, the working middle and lower classes—from fiscal burden.

A tax case involving a writing activity played out in Tax Court in Arlington, Virginia, the case of Ralph Louis Vitale, Jr.1 Let’s look at it relative to preparation and expertise. I don’t know if Mr. Vitale goes by Ralph or Louis or some other appellation among friends and acquaintances, but I’d like to call him Ralph. It seems such an improbable name for what his writing focused on after retirement. To me his last name, Vitale—reminding me of “vital” or “vitality”—seems more apropos. Anyway, the guy had verve, although some might say he was just libidinous. You be the judge.

Let me give you the facts in the next posting.

1 Ralph Louis Vitale, Jr. v. Commissioner, TC Memo. 1999-131 affirmed by unpublished opinion of the Fourth Circuit at 217 F.3d 843.

What to Do? What to Do?

It is no small thing to draft a book, and there is little doubt Sarah worked at her writing activity. What should Sarah have done differently? Here are some suggestions.

·       From 1976 to 1980, even while working for Yale as a research associate and computer programmer, if she intended to write for profit in the future, she should have:

o   Begun writing

o   Taken pertinent classes

o   Formulated a business plan

o   Joined and participated in a writer’s league

o   Attended writer’s conferences

o   Joined a critiquing group

o   Started submitting pieces to contests and publishers

·       When she learned of the publisher of travel guides who needed information for a revision to an African travel guide and contacted the firm and received information regarding submissions, she should have incorporated such into her plan and followed up or explained why she hadn’t.

·       While in Africa and Israel and employed by Weizmann, Sarah should have tracked her writing efforts, logging typewriter use, research time and efforts, and any other efforts she expended to write her draft based upon her adventures there. Did she work eight hours a day for her employer and write for one hour a day? She should have kept financial and non-financial records of writing activities. Also, she should have modeled an exemplar, someone who had already sold well and made lots of money in her genre— Bill Bryson, who wrote A Walk in the Woods and, much later, In a Sunburned Country comes to mind. At the same time she should have retained her originality and voice and planned how her work could compete or fill a new niche. (It’s hard to convince the IRS or the Tax Court that you moved somewhere to gather writing materials to write a particular piece of fiction while you’re making substantial wages from your employer. That’s especially true if the wages you make are substantial compared to the revenue or potential revenue of writing.)

·       Sarah should have gotten her work published. At the very least, she should have shown she consumed herself trying and that she had an alternative business plan to market it. It wouldn’t hurt, for example, to show that she could at worst self-publish and peddle her work. Potentially, then she could eventually generate revenues like forerunner Bill Bryson. (Of course, her writing skill would have to rival or exceed his—perhaps this would be another goal for her business plan.)

Silly Sarah

Consider Sarah Lesher, who had had a couple of appalling encounters with the IRS, partly because she didn’t adequately prepare.


From 1976 to 1980, Sarah worked for Yale as a research associate and computer programmer. When she learned of a publisher of travel guides in need of information for a revised edition of an African travel guide, she contacted the publisher and received information regarding the submission of articles.

Sarah traveled to Africa in October 1980 and then to Israel in January 1981. While in Israel, apparently to gather information for writing, the Weizmann Institute employed her as a computer programmer. During 1981 she bought a typewriter and wrote at least one draft of a fictional work based on her adventures while in Africa and Israel. She didn’t keep any type of business accounting records of her writing activities. Nope, Sarah thought she could get by without debits or credits or other financial or non-financial records.

My friend Doug, longing to deduct the costs of going to Vietnam to get photographs of unique motorcycle use to create a picture book, might want to pay attention to this case as an example of what not to do.

In September 1981, Sarah left Israel for Europe and then returned to the United States at the end of November. During 1981 she incurred a total of $9,847.13 in expenses connected with her travels. She deducted this amount on Schedule C of her 1981 Federal income tax return.

Again in 1982, Sarah traveled to Africa, possibly for writing materials, and there resumed working as a computer programmer. In April 1983, she returned to the United States where she continued her education and again worked as a computer programmer.

Sarah lacked experience writing any type of literary work prior to her trip. Further, she didn’t publish or sell anything she wrote with respect to her travels before her Tax Court trial. By then she still hadn’t engaged a literary agent to help her to publish. (It doesn’t appear that the Tax Court knows how difficult it is to get a literary agent.)

Silly Sarah didn’t ever show the court that she had traveled to Africa, Israel, and Europe to write, or that she had remained in Israel in 1981 to author works that could make money. The court said that Sarah used her fiction manuscript as a pretext to claim her travel as a tax deduction. Essentially, the court said that Sarah’s fiction was a fiction.

While Sarah introduced several hundred exhibits, including a copy of a draft of her novel—it makes one wonder how that impacted her copyright—correspondence and information concerning the accomplishments of her ancestors, friends, and acquaintances, her personal life, her activities for many years before and after the years in issue, and even the backgrounds of various authors, the court still said that Sarah used her draft novel as window-dressing to support claims for travel expense deductions.

“Preparation precedes power.” Remember that axiom. Prepare to be a better artisan and to address every IRS concern by studying your expression activity’s accepted business, economic, and scientific practices, or by consulting its experts.