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.

To Facilitate a Means

Some years ago Bill Maher fantasized a tax return of repute, saying George W. Bush's tax returns were a bit different. He claimed the President wrote off the Christian Right as dependents, declared the 2000 election as a gift, and tried to claim the mileage he got from 9/11. Bill, of course, was joking around, fabricating. Don’t make your return that reports your expression activity a truth stranger than fiction, worthy of ridicule by taxing authorities. The Tax Court said:


The purpose of maintaining books and records is more than to memorialize for tax purposes the existence of the subject transactions; it is to facilitate a means of periodically determining profitability and analyzing expenses such that proper cost-saving measures might be implemented in a timely and efficient manner.

Don’t muck things up

John R. McCarthy —I’ll call him Johnny—retired from Rocketdyne, Inc. He’d worked as a scientist and engineer for 35 years writing technical and scientific proposals. Thereafter, he still worked, but was self-employed, utilizing his prior experience.


On various Schedules C, Johnny listed his “principal business or profession” as writing, investing, job shopping, art, engineering, science, consulting, teaching, photography, and research. (A bit unfocused, eh?) Johnny stuck some royalties, interest income, and lecture fees characterized as business income on the Schedule C pertaining to writing. Despite asserting that he used those resources to pay for writing expenses, such income didn’t derive from any writing he had done. Johnny should have reported these royalties and fees as “other income” and the interest income on the interest-income line on his tax return.

The court said that Johnny’s expenses which truly related to writing couldn’t offset such income which didn’t come from writing. Everything Johnny did made it look like he was confused and undecided. To use a cliché, Johnny was a jack of all trades and a master of none. The expenses he listed on various Schedules C related to his writing activity all right. Writing was the only activity he really engaged in with regularity. Concluding that he should have reported everything on a single Schedule C pertaining only to writing, I’ll bet you’re not surprised to hear that the court concluded that he lacked a profit motive. He hadn’t generated any writing revenue. While aspects of his activity were managed in a businesslike manner, Johnny couldn’t explain how he expected to recoup his substantial losses. A sound, focused business plan and accurate and complete financial and non-financial records could have helped—both in making his business profitable and in convincing the IRS he had a “profit motive.”

Don’t muck things up. Forget trying to disguise income from other sources as income for expression activities. That’d be crazy. Keep records—business and non-business—that present operations clearly, completely, and succinctly. Remember the bard’s advice: brevity is the soul of wit. Mind your debits and credits if you use them. If not, don’t scrimp on accuracy, meticulousness, and using the data germane to and used in conjunction with a vibrant, viable and compelling business plan. Make it crystal clear that you have a plan to succeed as a writer—that your goals show that you plan to be as successful as J. K. Rowling or Dave Barry. If you’re convincing enough, you’ll never have to worry about convincing the IRS that you’ll recoup your losses.


Non-financial records should include databases of contacts, customers, and consultants, along with their pertinent information. If you’re a writer, you should keep track of the hours of your writing, researching, and editing. You should have a database to show details about your submissions, including the title of the work, where you submitted it, the date, follow-ups, responses, sales, etc.
One further thing: keep your expression activity records separate from personal records and other business records. Have separate expression activity credit cards, debit cards, checking and savings accounts, and accounts at your favorite vendors. If you have more than a single proprietorship, don’t ever intermingle them. Doing so may subject you to ridicule.

Debits, Credits, and Other Nincompoopery

A late-night talk-show host some years ago now quipped about an our-of control accounting firm debacle, “If your accountant is Arthur Andersen . . . today is the last day you could have your tax documents shredded by April 15th.”


Let’s face it; the accounting profession has committed sufficient buffoonery ove the years to rival the stench of Yellowstone’s sulfur pots. That’s not to say that accounting is suspect. Yet accountants can be. Watch out for such fatheads.

Many admit that accounting is a yawner, that accountants are . . . well, lackluster. Make no mistake though, for your expression activity to be a trade or business you need to pay attention to its basic accounting. That doesn’t necessarily mean that you have to know debits and credits or hire a high-falutin’ CPA. If you choose a CPA or other tax professional, make certain it’s someone you can trust. A double-entry system of accounting isn’t necessary, although it certainly won’t hurt if it’s done correctly. The key is accuracy, meticulousness, and using the data in conjunction with a vibrant, viable business plan. Regulations and court cases point out that those who maintain good books and records for their activities are more likely to have “intent to profit” and thereby escape the “hobby” label even when they have successive losses.