Taxable Sex

The United States Tax Court has decided that payments for Prostitutes and Pornographic materials are subject to tax. Please find below an article in Legal Blog Watch/Robert J. Ambrogi regarding this matter.

Tax Court Writes Off Lawyer's Deduction for Prostitutes

A veteran New York tax lawyer has lost his legal battle to claim tax deductions for more than $100,000 he spent on prostitutes and pornography. But, hey, you can't blame a guy for trying.

William G. Halby, a tax lawyer first admitted to practice in New York in 1956, claimed the deductions as medical expenses. His visits to prostitutes and his purchases of books and magazines constituted sex therapy, he contended. Over two years, he claimed deductions for $108,086 spent on prostitutes and $7,373 on books, magazines, videos and pornographic materials.

But in a decision issued this week, the U.S. Tax Court ruled that Halby's sex therapy was not an allowable deduction.

Petitioner’s payments to various prostitutes were personal expenses not prescribed by a doctor and not intended to treat a medical condition. Petitioner is not entitled to deductions for these amounts.

Petitioner is likewise not entitled to deductions for amounts paid for books and magazines on sex therapy and pornography. The purchases were not for the treatment of a medical condition but were instead personal items.

At least it can be said that Halby was meticulous in claiming these deductions. The Tax Court said that he kept track of his visits to prostitutes in a journal. "The journal included the date, the name of the 'service provider,' and the amount." He did not, however, ask the "service providers" for receipts.

Not only did Halby lose the deduction and have to make up some $21,000 in tax deficiencies, but he was also ordered to pay a penalty of $4,298 for claiming deductions without any reasonable basis in the tax law. As an attorney who specialized in tax law for more than 40 years, the court said, Halby "should have known that his visits to prostitutes in New York were illegal and that section 213 [of the tax code], the regulations thereunder, and caselaw do not support his claimed deductions."

Halby's Martindale-Hubbell profile shows him as being of counsel to a law firm in Larchmont, N.Y., but the firm's Web site does not list him anywhere. Halby had already lost a state tax case involving these same deductions, with the N.Y. Division of Tax Appeals concluding that "permitting the deductions would be counter to public policy."