INTERCUBA: PREGUNTAS Y RESPUESTAS
Advertising Expenses for Professionals Expenditures Paid or Incurred by Robert G. Fitzgerald / The Missouri Bar Professionals, like doctors and lawyers, advertise their services. Advertising expenses are generally deductible under Section 162 of the Internal Revenue Code ("Code") as an ordinary and necessary expense paid or incurred by a professional in carrying on the trade or business. However, such expenses must be "paid or incurred" during a particular tax year in order to be deducted. In Remy v. Commissioner, 73 TCM 1976 (CCH Dec. 51,876(M) 1997), the Tax Court disallowed as an advertising expense the value of unpaid medical services provided to patients given over the telephone by a cash basis physician. The physician was not entitled to deduct the value of his own labor as a business advertising expense. The taxpayer was a medical doctor who operated an ambulatory care medical clinic in Oklahoma. As part of his practice, he frequently consulted with his patients by telephone and telephoned pharmacies to authorize the refilling of prescriptions on behalf of patients who requested him to do so. Remy did not charge his patients and received no cash or other compensation for these telephone services. The taxpayer kept a log of his telephone consultations with patients, with each entry consisting of the name of the patient, the date of the call, and a brief description of the nature of the call. In 1992, there were approximately 860 entries in the log. Remy reported income for federal income tax purposes on the basis of the cash receipts and disbursements method of accounting. On Schedule C, he claimed a deduction for advertising expenses which included the telephone services for his patients. The deductions for telephone services did not involve any outlay of cash or property by him, but were based upon the value Remy ascribed to the professional services for which he was not compensated. He computed the value of the telephone services by multiplying the number of entries in his log by $20, a minimum charge for his medical services. The taxpayer did not include in gross income the value of the uncompensated medical services deducted. Although Remy did not obtain formal professional advice from tax professionals in taking his position on his return, he did informally receive advice from professionals known to him in social clubs. In ruling against Remy's position, the Tax Court emphasized that a cash basis taxpayer is not entitled to deduct a trade or business expense, such as advertising, unless the taxpayer has actually paid the expense during the taxable year. Remy made no expenditure of cash or property for which a business deduction was allowed under Section 162 of this Code. The value of labor performed by a taxpayer does not constitute an amount paid or incurred," and, for that reason, a cash basis taxpayer is not entitled to deduct the value of his or her own labor as a business expense under Section 162(a). (Cases omitted). To hold otherwise would be to allow a business deduction for unpaid compensation which was never reported as income. (Cases omitted). Id. at 1979. Comment Remy's position was untenable under case law and the penalties allowed under Section 6662 of the Code were imposed on the doctor. According to the Court, Remy attempted to research the tax law to find authority for his position and documented the extent of his telephone services. In fact, the "free cocktail advice" received by the taxpayer from "prfessionals with whom he was acquainted" guaranteed the imposition of the penalties on Remy. JOURNAL OF THE MISSOURI BAR Volume 53 - No.4 - July-August 1997