Kevin John Witasick, Sr. & Whitney S. Witasick, 23069-16

Kevin Witasick, an attorney, and his wife purchased and renovated a historic Virginia home, Stoneleigh, which was intended for both personal residence and as a satellite office for Witasick’s law practice.
On their 1999 and 2000 tax returns, the Witasicks deducted nearly half of over $1 million in renovation costs as business expenses, mischaracterizing these as outside services or unreimbursed partnership expenses.
Kevin Witasick was later convicted of criminal tax evasion for these years, while Whitney Witasick was acquitted of all charges. The IRS then pursued civil deficiencies and fraud penalties.
The Tax Court proceeding centered on whether the claimed deductions were valid business expenses, the appropriate amount of the home used for business, and whether fraud penalties and deficiencies were justified and timely.
Most material facts were stipulated, including the amounts of renovation, interest, and allocable expenses, but the parties disputed the percentage of business use of the home and whether certain costs were deductible or had to be capitalized.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether renovation costs were deductible	All costs were repairs, deductible as expenses	Substantial costs were capital improvements	Held: Most costs were capital and not deductible
Business use percentage for home office	40% of home was for business	Only 25% was used exclusively for business	Held: 25% was generous and is the correct figure
Entitlement to additional interest deduction	Entitled to add $84,000 in interest expense	Stipulation barred further claims	Held: Stipulation is binding; no added deduction
Timeliness of IRS assessment post-limitations	Fraud only by Kevin; time-barred for Whitney	Kevin's fraud extends limitations for both	Held: Fraud by one spouse lifts bar for both
Application of civil fraud penalty	No fraud or not all underpayment was fraudulent	Criminal conviction estops challenge	Held: Kevin personally liable for fraud penalties

Richardson v. Commissioner, 509 F.3d 736 (6th Cir. 2007) (fraud by one spouse eliminates statute of limitations for both on a joint return)
Klein v. Commissioner, 880 F.2d 260 (10th Cir. 1989) (criminal conviction for tax evasion collaterally estops taxpayer from denying civil fraud)
United States v. Wehrli, 400 F.2d 686 (10th Cir. 1968) (costs from an overall plan of capital improvement must be capitalized)
Stoeltzing v. Commissioner, 266 F.2d 374 (3d Cir. 1959) (capitalization required for broad rehabilitative work)
Jones v. Commissioner, 242 F.2d 616 (5th Cir. 1957) (plan of rehabilitation requires capitalization of expenses)
Bank of Houston v. Commissioner, T.C. Memo. 1960-110 (general renovation to resolve disrepair is a capital expenditure, not deductible)