In episode 63 of How Tax Works, Matt Foreman discusses what’s taxable (and when), what’s deductible (and what proof you need), and whether you can deduct the cost of trying to catch a pass from former Montreal Expos farmhand Tom Brady (Sami v. Comm’r, T.C. Memo. 2026-69).

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How Tax Works, hosted by FRB Partner Matthew E. Foreman, Esq., LL.M., delves into the intricacies of taxation, breaking down complex concepts for a clearer understanding of how tax laws impact your financial decisions. Through this, listeners are treated to a comprehensive breakdown of entity structures, from the robust shield of C corporations to the flexibility of partnerships and LLCs. Foreman navigates through the maze of tax considerations, shedding light on entity-level taxation, shareholder responsibilities, and nuanced tax strategies. Foreman shares valuable insights and practical advice, emphasizing the need for informed decision-making and consultation with tax professionals. From qualified small business stock to state and local tax considerations, no stone is left unturned in this illuminating exploration of tax law and entity selection.

Whether you’re a seasoned entrepreneur, accountant, lawyer, or financial advisor, How Tax Works offers a wealth of knowledge to empower you in making sound business decisions. Tune in and embark on a journey to unravel the complexities of tax law, one episode at a time.

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Transcript:

**This transcript has been prepared automatically by AI and may contain inaccuracies**

Matt Foreman [00:00:11]:
Hello and welcome to the 63rd episode of How Tax Works. I’m Matt Foreman. In this episode, I will discuss the taxation of influencers and content creators, or people whose jobs I don’t understand how it’s a job. How Tax Works is meant for informational and entertainment purposes only. This may be attorney advertising, and it is not legal advice. Please hire your own attorney. How Tax Works is intended to help listeners navigate the intricacies and complexities of tax law, regulations, case law, and guidance to demystify how taxes shape the financial and business decisions we all make. Before we get started, a few administrative things.

Matt Foreman [00:00:44]:
New episodes every 2 weeks. The next episode, we’ll discuss an update on self-employment taxes under 1402 of the Internal Revenue Code. Including the Second Circuit’s recent decision in Soarbond Capital Partners, the Fifth Circuit’s recent updated, reissued, I don’t know, decision in what was formerly called Sirius Solutions, and the recent briefings-ish thing in Denham Capital Partners, which is First Circuit. So again, some really, really good stuff there. I hope that the First Circuit doesn’t issue an opinion before it comes out, but we’ll see how it goes. Got some upcoming webinars. You know, right now this is being released in, I think it’s mid-October. And there’s, there’s 6 on a total of 7 weekends, 3 in a row.

Matt Foreman [00:01:28]:
They’ve got Thanksgiving and 3 more in a row. There’s a link on the FRB page for it. There, there’s 6 topics: past equity losses and credit limitations under 469, what to expect when you’re selling a business, reps and warranties, indemnifications, and purchase price adjustments. Any selection, which is a sort— it’s gonna be Sorbonne and Sirius Solutions. Uh, now Kayleigh, maybe I should get that, that. That name updated. Opportunity Zones 2.0. So we’re going to talk about the new stuff that’s starting in January.

Matt Foreman [00:01:56]:
Qualified Small Business Stock, an update. Not a whole lot to update there, but it’ll probably just be a review of a lot of the stuff that goes into it. Be a good hour. And Equity Incentives and Partnerships and LLCs, Structuring Profits, Interest, Capital Interests, and Options. If you can’t find them or you just don’t know where it is, email me. You can contact me and I’ll send you the link. Not an issue. So now, now, now it’s time to discuss the taxation of influencers and content creators.

Matt Foreman [00:02:22]:
I get, I get questions about how influencers and content creators and all that jazz are taxed, and I get them fairly often because there are people who that may not be their job, but that’s their side hustle, or it’s something that they do And I think it’s an interesting topic because it’s one that is filled, you know, filled with misinformation. And not everyone is Livvy Dunn, who, as we all know, is most famous for being Paul Skeens’s girlfriend. Not everyone reaches her level of dating, you know, the 2-time reigning Cy Young Award winner. That was a joke. She is, you know, she was famous before him and see how that goes, right? You know, but really when you talk about the taxation of influencers and content creators, you’re asking 2 separate questions, which is really fundamentally ones that are asked in every single business. What is income? When is it taxed? And when is it taxable? What is deductible? And when is it deductible? Right? And the advice online is, wow, It’s about as good as you’d expect from this kind of thing online. You know, internet tax advice is bereft of quality. That’s not true.

Matt Foreman [00:03:41]:
There’s a lot of good stuff out there, but a lot of the stuff that’s really pushing itself, man, the SEO on bad advice is— we should all take lessons from how they do it. Maybe that’s because they’re content creators and influencers. So it shows you don’t need technical expertise to be one. So what is an influencer? What is a content creator? I don’t really know. I don’t understand it. But basically it’s someone who’s famous for being famous or famous for a reason, and then goes out there and serves as a marketing or advertising person for products. That’s really important to understand fundamentally, that it’s, it’s kind of a job, kind of not. I am assuming for the income portion that it’s a, that it’s a job.

Matt Foreman [00:04:22]:
I mean, if you’re making money, it doesn’t matter if it’s a job or a hobby, you’re gonna pay tax on it. But for the deductions, whether it’s actually a job is really important in that. We’ll get into that when I get into the case law. First, I’m going to talk about what is income, right? And a common one is you get samples of things. You get, you know, you get a backpack to try it out. You get a new mug to drink water, whatever, so that you can review it. That is taxable upon receipt. And people say, no, no, no, they gave it to me.

Matt Foreman [00:04:52]:
You know, it’s a gift. And I always point out, you know, It’s not a gift, right? That’s not how Dubrstein works. It may be Section 83, you know, services, property exchange for services, right? They’re telling you if you review it, we’ll give you one for free, but here’s the one for free, right? They’re kind of getting the order a little out of the way, but that’s it. It’s definitely Tax 161, definitely hits Glenshaw Glass. Like I said, not a gift. Don’t call it a gift. It’s not a gift. Samples so you can wear clothes or use the product, right? Just be seen in your Nike or Gucci or whatever t-shirt, I don’t know.

Matt Foreman [00:05:22]:
What they said, I’m definitely not an influencer or content creator. I think that’s Section 83 taxable, you know, property for services. The income for both of those is the fair market value of the product provided. So I think that’s important. What if you return it, right? And someone asked that, well, what if after I use the thing, I have to send it back, right? They give me a shipping label, I send it back. And I would say that the value of what you’re getting is the value of renting it for the period that you’re using it, right? They’re providing a product for free, theoretically, right, for you to operate your business. I think that value is taxable because what’s happening is they’re allowing you to use the product and you are generating revenue for your business simply because you— it’s not like you’re selling the product. I don’t think you have to sell the product out of business, but I think the rental cost, a fair market rental cost, that’s your income.

Matt Foreman [00:06:17]:
Some people say it’s the full value of the product, not just the rental, because it’s not like they’re gonna, you know, resell the used shirt or mug or whatever. But I think that’s important. I’ve also seen ones where people get, you know, they get a flight somewhere and they get a vacation and they write, you know, their travel thing. First off, that’s like a whole ethical whoop-de-doo, because if you are getting that and then you’re writing You know, about your trip, like, are you really going to say it’s bad? Because if you say it’s bad, you’re never going to get another one from that company or anyone else. So there’s an ethical issue there, but it’s definitely taxable income. And I think it’s important. This, the answer, you know, for is this income goes back to what my basic federal, one thing my federal income tax, basic federal income tax professor said in law school. And he says, if it makes you feel good, it’s taxable.

Matt Foreman [00:07:06]:
Taxable income. And if it makes you feel good to get that new mug or bobblehead, in my case, if anyone wants to send me some bobbleheads, I’ll probably pay the taxes on them if I like them. Otherwise, I’m just going to send it back, whatever, or donate it, I guess. So I think that’s the answer. So everything’s income, and this is how Section 61 and 83 work, and law, case law, and regulations underneath it, and the guidance work. Everything is intended to be taxable. So I think that that’s a really, really important point to make that a lot of people think, oh, you know, because I don’t get cash, it’s not taxable, which is just absolutely not true. And it’s important to do it to make sure to pay your taxes.

Matt Foreman [00:07:46]:
‘Cause if you don’t, you know, you could end up in jail like the Situation or something. Anyway, so let’s get some, get a quick music break in here. We’re going to come back and talk about what is deductible. Okay, so, so we’re back. We’re talking about the taxation of of influencers and content creators. So what is deductible? It all comes down to what is an ordinary and necessary business expense under Section 162, really. There’s 2 components. I’m going to talk about it, but I discussed it in a lot more detail in episodes 4 and 5.

Matt Foreman [00:08:47]:
So you want to go back to some of the original episodes, hear me before I got a new microphone. I think this— I’ve been told this microphone’s better. I don’t know how much you can really improve the sound of my voice, but here we are. Not because I have a great voice, believe me, that’s not what I’m going with there. So, you know, I’ll assume you have a general idea of ordinary and necessary business expense. I’m going to go into it somewhat, but I think it’s important to kind of understand that you have someone. We all know, you know, what happens when you assume. So prong 1, ordinary, right? There’s 2 prongs, ordinary and necessary.

Matt Foreman [00:09:17]:
Prong 1, ordinary. It is based on the time, place, and circumstances, the nature and scope of the particular business, and it’s expenses that are— that regularly arise from transactions that commonly or frequently occur in this type of business, the type of business involved. Lilly 343 U.S. 90 goes through those. An expense can be ordinary even if no other company engaged in the same business makes similar payments. United Title Insurance goes through that, but it is very narrow because there are actually cases that go the other way. I think that’s one of those ones where, you know, people talk about it, and I’m going to get into this in the case that I sort of dissect later, is that there’s sort of this thing that like, well, you know, if it helps my business, it’s good. And it’s no, it’s that it’s ordinary.

Matt Foreman [00:10:04]:
Other businesses in your industry have to use it. Sometimes you’ll get an expense that other ones don’t do. And it actually really looks then, I’ve always found it, is it has to have a more direct link To what you’re doing. You know, hiring, you know, driving a Porsche around town to advertise your plumbing business, you might say, well, I have to have a car, I have to have this. No, no, no, no, that’s, that’s not ordinary to have a Porsche, right? That’s not. So simply because it may help your business does not mean it’s ordinary. Question is really whether others do it or would do it. You know, some people might say, look, like, it’s a common thing to do, but for my business, I found I don’t get a good return on it, so I’m not going to do it.

Matt Foreman [00:10:41]:
That’s important. Prong 2 is necessary. The expense is appropriate and helpful. There’s 2 parts to that. It does not have to be essential. That’s Welch, which is a Supreme Court case, 290 U.S. 111, I believe, if my handwriting is to be trusted. I’ve discussed before that I don’t— it’s not.

Matt Foreman [00:10:59]:
And my notes when I do this tend to be little scribbles. It can be necessary if there are other ways to achieve the result. You don’t have to do the best way. But to be necessary does not need to be absolutely essential, but the method chosen must be reasonable. A lot of case law on that, but Sherman 44 Tax Court Memo 1324 is the one that goes for it. Memo, memorandum, I forget. If there are more economical and practical ways of attaining the same result, you need both. It needs to be economical and it needs to be practical, then the expense is not reasonable.

Matt Foreman [00:11:31]:
There’s a bunch of case law that deals with that. But this goes back to, you know, I talked about in the ordinary prong, the idea of a plumber having a Porsche. Don’t really— not really a great one. Everything here is a facts and circumstances test. So there’s no bright line. People say, well, what is reasonable? And I always say, well, it depends on the facts and circumstances. And then clients get annoyed at me because I’m not really answering their question, which is probably reasonable, actually. You know, in— and that’s the key.

Matt Foreman [00:11:58]:
It can be a quote unquote voluntary payment. There’s lots of Conflicting case law on this. You know, people talk about like when you sell a business and you give bonuses to employees, is that deductible? Yes, there’s case law on this, but, you know, it’s still a bit of a question. And a lot of the issue comes that for that specific thing, whether it’s necessary is, look, you’re thanking them for work they already did. So it’s not really helpful to you, but it’s helpful to the ongoing business. I think it is. I don’t think the IRS is going to get too grumpy on that one. Especially because it’s not like you’re deducting something that then becomes, you know, not income elsewhere.

Matt Foreman [00:12:32]:
They’re picking it up. So I don’t think that one’s a huge issue. So we’re going to— we’re going to— that’s a quickie. But, you know, we’re going to take a quick— a second quick music break and then we’re going to talk about what I believe is the first influencer tax case ever, tax court memo. And it is really, really, really important to understand what it says, what it doesn’t say. And sort of the other ancillary issues that come across in this case. So let’s go get some music in here and then we’ll, uh, bring it home. Okay, and we’re back.

Matt Foreman [00:13:36]:
So the first case is, is, I believe it’s pronounced Sammy, could be Sami, S-A-M-I, TC Tax Court Memo 2026-69. Look, first off, I want to say something, and they say it in the decision, in the memo, but, you know, I think it’s important to note that this dude is a straight-up grinder and he should be commended for his work ethic. He seems to keep a pretty serious job and be a driver. You know, like, in New York City, it says to do it in New York City, which he did, you have to be licensed by the Taxi and Limousine Commission. It’s not a challenging thing to do, but he did it. And it’s not like he did, you know, went out and did all this stuff, but he went out, he gets licenses, he drives people. He does. Other stuff.

Matt Foreman [00:14:16]:
He is, he is trying to live life, earn money, and just go for it. And he should be commended for that. And the decision actually, the memo really does say that, which I thought was good that the judge sort of acknowledged the taxpayer. So he, in it, you know, he had all these deductions where he paid for trips to the Grammys, to the Emmys, meet and greets with Matt Damon, Benedict Cumberbatch, which I still don’t believe that’s a real name. Apparently it is. And Mark Ruffalo. who, you know, name sounds like Buffalo. But anyway, I’m sure he’s heard that one before.

Matt Foreman [00:14:46]:
Anyway, so he paid to catch a pass from Tom Brady, which he dropped. He paid to catch a pass from Drew Brees, which he did not drop. And then he paid to try to return a serve from John McEnroe, which he could not do. I just want to say that I am not throwing shade on someone who can’t do 2 of those 3 things or any of those 3 things because those are hard. I think people really do not fundamentally understand how good professional athletes are. Even, you know, John McEnroe has been retired for a bit, but I really don’t think people understand how good professional athletes are at their chosen vocation, which makes people like Deion Sanders or Bo Jackson or Michael Jordan, you know, whatever, sort of all the— Danny Ainge even, you know, who only played, you know, was actually not very good at baseball the years he played. But even the crazier, they were able to do multiple things. You always see these interviews with professional athletes.

Matt Foreman [00:15:36]:
And for reasons I don’t understand, this always happens at the beginning of baseball season. And you have a basketball player and they go, you know, take batting practice with a team in the area and like, oh, you know, if you had a few thousand at-bats, what do you think you’d hit? And they’re like, oh, I’d hit, I’d hit .200. And I gotta tell you, like, I do not believe that to be true. I think people really fundamentally don’t understand how hard quarterbacks throw, how fast defensive linemen, you know, guys who weigh 300 pounds, how fast they are, how strong they are, and then things like that. I think that the things that professional athletes do are sort of crazy. I’m not saying they’re paid enough or not enough. I don’t, I don’t really have an opinion on that, especially not professional athletes. But I think it’s important to understand how hard it is.

Matt Foreman [00:16:16]:
So when I make fun of him for it, I make fun of him for doing it and then trying to deduct it, not for trying to do it or wanting to do it because it does sound pretty cool. Um, Mr. Sammy is a social media influencer. Actually, you know, the court sort of says this. He might be a wannabe social media influencer. There’s a real question as to whether he is. You know, I don’t know how to— I don’t know where that bar is, but the court was not terribly impressed. There are some real fundamental issues with it.

Matt Foreman [00:16:42]:
First off, his records were bad. This is— we talk about Cohan and the court, the tax court, you know, the judge, to his credit, tried to use Cohan. Tried to see if he could bring in the information. He really put forth— the judge put forth an effort to try to allow the deductions, but the documentation was just too poor. The records were not there. He didn’t provide anything. He didn’t keep receipts, things like that. You know, he’d have a credit card statement saying, oh, I paid this.

Matt Foreman [00:17:13]:
And the comment would be like, you know, a bunch— if you ever look at the credit card statement, a bunch of letters and then a couple numbers, you’re like, what does that mean? Right? Keep the receipts. Get the receipt. If you’re going to litigate this in tax court. And, you know, Sammy was a— he’s a CPA, certified public accountant. He should know that. He should get that right. So what did he deduct? What did he try to deduct? Right. He tried to deduct streaming services for market research.

Matt Foreman [00:17:34]:
No, I think there are situations where that would work. You know, there are cases involving like Broadway actors and actresses paying to go to other shows as market research or for, you know, just to kind of get out there. Yeah, I think that that would work, but not here. He went to Comicpalooza, which I assume to be a big gathering of comic book fans. I don’t know, but I think it’s that was not allowed. There were a variety of marketing events he went to, you know, and there’s a lot of case law that the judge really went through this in some pretty good detail. So again, you know, if you want to give it a read, it’s not a long one, not a hard one, but Tax Court Memos 2026-69. And they must say that, you know, the marketing events you did and then the offenses generally must have a business purpose, not just a personal purpose.

Matt Foreman [00:18:21]:
Look, catching or attempting to catch, right, a pass from Drew Brees or Tom Brady is a neat thing to do. It’s fun. People pay for it because it’s fun. Yeah, but you can’t just pay to do it. There’s a lot of case law, but on that, they cited in it, so I’m not going to go through the specific citations. He took, you know, a weekend trip. There’s a case they talk about where someone took A bunch of employees and a bunch of customers on a weekend trip to the Super Bowl. It was not deductible because it was a group social excursion with a business playing a secondary role, which means that the business purpose must be not necessarily primary or principal, but it must be much more than a true secondary role.

Matt Foreman [00:19:02]:
So people are like, oh, well, you know, we’ll go to this football game and it’ll just be it. Look, group outings, Absolutely the kind of deductible thing you can do, right? That, that’s something you can do. But it can’t be like, let’s go to the Super Bowl, oh, it’ll bring a client so that it’s deductible. Not how that works. The primary motive must be to increase visibility and generate sales, which is actually where I think he really fell down. Did he post it on social media? Yeah, I suspect it’s still on his Instagram page or whatever, but I don’t think it’s really what he was going for. Also, in the years at issue, he had no revenue, zero. He had revenue in prior years.

Matt Foreman [00:19:40]:
So there’s sort of a question as to whether this is even a business generally. There is an indirect benefit at best, and I think that’s really important. And you have to show the relationship between the expense and the revenue, the expectation of revenue, the revenue you have, and the profit-seeking activity. The court really did talk about, you know, the idea that you don’t have to actually be making money to be a business. But like, you got to try. And he was just— he had no revenue. And I think it’s tough when you have revenue, then you drop to zero. Like, are you actually trying to be a social media influencer or do you just want to offset your fun by taking deductions, which then, you know, the rest of Americans pay for? Not good.

Matt Foreman [00:20:18]:
The judge, despite, you know, really, I think, trying to resolve this in a taxpayer-friendly manner, then upheld the penalties and interest in full. And I think he was actually— the judge was actually right to do that. Because I don’t, you know, look, he provided no documents. I think if you provided documents and they weren’t good enough or they didn’t show it or it just generally wasn’t deductible, I think you might get penalties. But I felt like the judge was a bit irked with the idea that someone who was a certified public accountant came up with this bad of documentation. And that’s something I talk about a lot and it’s something you do. is when, when you’re doing penalty abatement or a lot of things with the IRS where they ask, you know, should the taxpayer have known? And this is one of those ones where the taxpayer should have known, and taxpayer got bad advice or just decided just to YOLO it, which sounds like something you would do if you’re a social media influencer. And it did not work, very much did not work.

Matt Foreman [00:21:14]:
So don’t recommend that. All right, well, that was the 63rd episode of How Tax Works. Hope you learned something. Hope you enjoyed it. Be back in 2 weeks with the 64th episode, where I’m going to talk about self-employment taxes under Section 1402 of the Internal Revenue Code, which is Sorbonne Capital Partners, K. Lane, formerly Sirius Solutions, and whatever is going to happen in that First Circuit. It probably looks beautiful right now with the trees, right? Getting into fall. All right, thank you very much.