Uphus and Walker v. IRS Commissioner

Tax Court Memo 1994-71, February 23, 1994 Time-Space Percentage

Summary of the Decision

The U.S. Tax Court ruled that two providers could claim that their basement areas and garages were regularly used for their business, despite the fact that child care children only occasionally entered these spaces. The IRS position had been that providers were not entitled to claim any space in the home as regularly used for business unless child care children regularly played in the space. In rejecting this position, the Tax Court looked at how the items in the room (toys, supplies, washer, dryer, and so on) were used by the business and whether the provider used the room regularly: "The fact that the children were generally not allowed in the areas is not dispositive of the issue. The issue is whether the area in question is regularly used in the operation of the taxpayer's day-care business, not whether or not the children are present in that area."

In deciding the issue of whether the garages of the two providers were regularly used for the business, the Court ruled in favor of one provider (Uphus) and against the other provider (Walker). Tom Copeland handled the Tax Court appeal for the two providers. Here is how the Court described the use of each garage in reaching its decision:

Uphus

"The garage was used by Mrs. Uphus to park her car and store both day-care and personal items. Mr. Uphus' car was always parked on the street. The garage contained the majority of the outside day-care play items; i.e., scooter bikes, sandbox toys, wagons, a movable cardboard basketball hoop, a slide, etc. The garage was also used to store lawn chairs, lawn-care materials, tools, a snowblower, bicycles, and miscellaneous other items that were stored in the rafters.

"During an average day, Mrs. Uphus and the older children were constantly entering the garage to retrieve and return the outdoor play items; the young children were not allowed to enter the garage unsupervised. A few times a month, when Mrs. Uphus took the day-care children on field trips, i.e., to the library, zoo, and grocery store, the garage was used to access her car. During the winter, the Uphuses used the snowblower to dear their home entrance for the day-care children, and in the summer and spring, the Uphuses used the lawn-care materials to maintain the yard. Often, Mrs. Uphus used the tools in the garage to fix the bikes or other play items."

Walker

"The Walker garage was rarely used in the day-care business. The children were prohibited from playing in the garage. The Walker garage generally contained Mrs. Walker's car and miscellaneous personal items of the Walkers. Mr. Walker's car was parked on the street. On occasion, one of the day-care children would leave a bicycle in the garage during the day. A few times a week, Mrs. Walker used the garage to access her car when she took the children on field trips, usually to the library, park, or zoo. Four days a week, the day-care children used the garage to access Mrs. Walker's car because she took the day-care children with her when she drove her child to preschool."

This case can help in clarifying several other issues:

Providers should count the square footage of their garage as part of the total square feet of their home. Most providers will be able to claim that they regularly use this space for their business.

Basement rooms may be considered regularly used for business even if they are off-limits to children because of licensing restrictions.

Providers who regularly use all of the rooms in their home for their business are entitled to claim 100 percent of their space as business use.

This handout was produced by Think Small (www.thinksmall.org).

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