Thank you for your question! Limited Liability Companies (LLCs) are not taxed on their profits directly. Instead, profits “pass through” the business and the LLCs members report the profits on their personal federal and state tax returns (if the state has a personal income tax). I assume that your complaint refers to your husband’s activity on his personal income tax returns, therefore.
26 U.S.C. §162 provides that LLC owners may deduct ordinary and necessary business expenses on their federal income tax return. The Internal Revenue Service’s guidelines define an ordinary expense as “one that is common and accepted in the [firm’s] trade or business.” Ordinary expense cannot be written off in the form of depreciation or amortization and must be made for carrying on a trade or business. Some courts assess whether an expense is reasonable by asking if a rational businessman would take out the expense.
The guidelines define a necessary expense as “one that is helpful and appropriate for the [firm’s] trade or business,” and is also intended by the firm’s owner to directly promote the business’ goals.
In short, an expense must meet five conditions to qualify under §162: (1) it must be normal to incur and cannot be a one-time expense, (2) is must occur in the taxable year, (3) it must be deducted in one fiscal year, and (4) it must be devoted towards the carrying on of a business or trade. Based on the information you provided, your husband was not able to deduct his mistress’ expenses because they were personal in nature. Indeed, 26 U.S.C. §262 explicitly prevents expenses for personal or family expenses.
With this said, I would refrain from pressing this argument in public if you filed a joint tax return with your husband. I say this because if you signed the return containing the false deductions, the IRS could audit you, assess civil fines, and may even press criminal charges.
Also, why this may seem perverse, if your husband successfully deducted the expenses from cheating, the net economic effect of the transaction was to have the government subsidize his unfaithful behavior, which means that your joint tax liability was reduced by the same amount he spent on his mistress. In short, you did not lose any money! I’m not defending him – I point this out because it may not be worth it to raise the argument if you could be fined and go to jail – especially if you did not lose anything of monetary value.
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