Robert and Dorothy Neilson vs. IRS Commissioner

Tax Court Decision 94-1, 1990 Time-Space Percentage

Respondent’s Deficiency Determination

During 1983 and 1984 petitioners operated a licensed day-care center in their home. Petitioners purchased their 3,000-square-foot home in 1981 for $119,624, of which $75,285 was allocable to the house. Eighty-nine percent of the 3,000 square feet of space was utilized for day-care purposes. The schedules below reflect the amount of deductions claimed by petitioners and allowed by respondent for the 1983 and 1984 taxable years.

Respondent determined that petitioners’ use of their residence for day-care services was 75 hours per week. Respondent’s estimate was based upon a log kept by petitioners that reflects the times and days that children were in petitioners’ care.

In addition to the time children were actually present in petitioner’s residence, petitioners spend about 2 hours each morning organizing the facility and preparing luncheon meals for the children. Petitioners also spent about one hour each evening after the children departed; cleaning and reorganizing the day-care facility. Respondent did not consider the preparation and clean-up time in estimating 75 hours per week. Petitioners, on occasion, also provided day care on weekends. Respondents formula did not consider the weekend use of petitioners’ residence. Petitioners utilized their residence for day-care business purposes for an average of 90 hours per week or 54 percent (90/168) of the time.

Petitioners claimed and respondent disallowed $532 and $608 for lawn care in 1983 and 1984 respectively. During 1983 and 1984 petitioners used the lawn areas around their residence for day-care business purposes. During 1983 and 1984 petitioners paid $532 and $608, respectively for lawn care expenses, 54 percent of which is deductible in each taxable year.

Type of Deduction

Claimed in 1983

Allowed in 1983

Claimed in 1984

Allowed in 1984






Lawn Care




















Real Estate Tax










*Petitioners claimed ACRS depreciation on the straight-line method for a 15-year useful life. Respondent determined that only 89 percent of the residence was used for day-care purposes and that day care was provided for only 75 out of a possible 168 hours per week, or 44.6 percent of the total time available for use. With the exception of the lawn care, which was disallowed completely, all other deductions were reduced to reflect the 89-percent and 75-hour factor determined by respondent.

Respondent concedes that any disallowed portion of real estate tax and interest would be deductible as “Schedule A” items. Petitioners concede that for 1983 the amount of interest claimed exceeded the amount they could verify and that they are therefore not entitled to $119 of the total deduction taken. Petitioners also concede that their personal use of the residence constituted 11 percent and, accordingly, only 89 percent can be considered for business purposes. 

Income Tax Deficiency-Merits

Generally, under Section 280A, no deduction otherwise allowable shall be allowed with respect to the use of a dwelling unit which is used by a taxpayer as a residence during the taxable year. An exception to the general rule exists where the residence is used exclusively and on a regular basis as the principal place of business for any trade or business of the taxpayer. Sec. 28OA(c) (1). Additionally, where a taxpayer uses a dwelling unit on a regular basis for day-care services, a deduction maybe allowable based upon percentage of use. Section 28OA(c)(4)(C) provides for a deduction in an amount equal to the expenses attributable to that portion determined by multiplying the total amount of the expense by a fraction, the numerator of which is the number of hours the portion is used for day care business purposes and the denominator of which is the total number of hours that the portion is available for use. Sec, 1.280-2 (i) (4), Proposed Income Tax Regs., 45 Fed. Reg. 52399 (1980), amended 48 Fed Reg. 33320 (1983).

Petitioners bear the burden of proving the amount of their use and their entitlement to a deduction. Welch v. Helvering, 290 U.S. 111 (12 AFTR 1456) (1933); Rule 142(a). Initially, petitioners have conceded that 89 percent of their residence was utilized for day-care purposes and that 11 percent was used for personal use.

Petitioners maintained a log which reflected the name of the child, the date, and time spent at petitioners’ residence. Respondent, based upon the log, determined that petitioners used their residence about 75 hours per week. Based upon petitioner: testimony, we have determined that petitioners used their residence about 90 hours per week. Our finding is based upon that preparation and clean-up time which is not reflected on petitioners’ log and upon the fact that petitioners occasionally provided day-care service on weekends. Respondent’s determination of 75 hours per week is apparently based upon a 5-day week and 13-hours use per day. With 90 in the numerator and 168 in the denominator, petitioners would be entitled to 54 percent of 89 percent of the items claimed on their returns in connection with day care, except for the lawn care. The 89 percent limit does not apply to the lawn care because it appears that the children had exclusive use of that area during the time day care was being provided. Accordingly, 54 percent of the $532 and $608 claimed for lawn care in 1983 and 1984 respectively is allowable.

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