Court denies energy-efficiency and business deductions claimed by W-2 worker
Harris v. Commissioner, T.C. Memo. 2025-113, No. 30097-21., 2025 BL 394664, Court Opinion
The Tax Court rejected an employee’s use of section 179D and other deductions to wipe out wage income, sustained accuracy-related penalties, but declined to impose a two-year EITC ban.
Holding
The Tax Court held the taxpayer was not a “designer” eligible to take section 179D deductions, had no separate trade or business to support section 179 or depreciation deductions, and could not deduct unreimbursed employee expenses.
The IRS met the requirements for the section 6662(a) penalty. The taxpayer was ineligible for the 2016 EITC based on income, but the court did not impose a two-year EITC ban.
Why It Matters
Confirms employees cannot claim section 179D unless they substantiate qualifying “designer” work.
Reinforces that section 179 and depreciation require an active trade or business.
Restates that reimbursement rights block unreimbursed employee expense deductions.
Shows substantial understatement can sustain section 6662 penalties even when other arguments fail.
Clarifies courts will not im…
