Business expenses after closing a sole proprietorship

[drbill1202]

I closed my healthcare practice in 2022. Medicare requires that I provide former patients with means of contacting me for their records. So, I am am maintaining phone and fax lines for 10 years under this requirement. Can I deduct these expenses even though the practice is closed and I have no continuing business income?

[Vanessa A]

No.  Once the business has been closed, and you filed your final return, you can no longer claim expenses for the business. 

[drbill1202]

Thanks for the prompt reply.

[AmeliesUncle]

Were you a sole proprietor (Schedule C)?

Yes, see IRS Revenue Ruling 67-12.  If it is a corporation, they maybe, with slightly different rules.

Accordingly, the ordinary and necessary expenses, incurred in a trade or business in prior years
and paid in the current taxable year, by an individual taxpayer, using the cash receipts and
disbursements method of accounting, are deductible under section 162 of the Code, even though
the business has been discontinued.

https://www.bradfordtaxinstitute.com/Endnotes/Rev_Rul_67-12.pdf

[Rick19744]

@AmeliesUncle I am not sure that the revenue ruling is exactly on point for this specific question.

The facts in the revenue ruling cited were that the expenses were incurred while the taxpayer was in a trade or business, but just wasn't able to pay at the time.  The debt was then paid subsequent to the business closing.

Those aren't the facts for this particular individual; the expenses in question are incurred after the close of the trade or business.

While I may take a "gray" position, it would depend on whether the phone and fax were only "used" for the prior medical practice.  Since I am fairly certain the costs we are talking about are not too significant, I am not sure the risk vs reward are beneficial.  I would be fairly certain that the IRS, if audited, would not acquiesce based on the revenue procedure.  At that point, the costs to fight the battle most likely exceed any tax benefit. 

[AmeliesUncle]

That's a good point that my citation wasn't exactly on track.  However, I have read rulings/guidance of some sort that indicated business expenses after the business closes would be deductible (I don't have citations handy). 

While also not exactly on track and I would need to look it up to remind myself of the details, I think the Arrowsmith case allowed a deduction (capital loss) of an expense of a corporation that happened after the corporation closed.  But as I said, I would need to re-read that case to see how 'on point' that is.

[Rick19744]

There are a few cases that deal with expenses post liquidation or closing.

These are generally some type of corporation; C or S.

The facts, once again, are not near the same facts as what was stated in the facts in this post.

Then, in the above few cases, the expenses paid as a result of the issue, are classified as capital losses, and are also a result of some issue related to when the business was actually in business.

I'm just not sure the risk vs reward is worth it, and I just don't see facts on point with what was originally stated in the original post.  The tax impact is just not that significant.

I just think the stretch is too much for these facts.

But that's just my opinion.