Four Decades for Justice
On October 2, 2014, the United States Tax Court ruled in favor of Cravath client Susan Crile in a case against the Internal Revenue Service (I.R.S.) over her status as an artist. Ms. Crile is a critically acclaimed visual artist and tenured professor of studio art at Hunter College, CUNY. The I.R.S. had accused Ms. Crile of underpaying her taxes on the ground that she was not in the “trade or business” of art and, accordingly, the expenses she claimed as deductions for her work as a visual artist were not deductible. In a decision with broad implications for professionals in both the creative arts and academia, Judge Albert Lauber confirmed that Ms. Crile’s art career was its own “trade or business” and not merely a “hobby” ancillary to her academic work.
In reaching that outcome, the Court applied a nine‑factor test to determine whether Ms. Crile had a profit motive when she engaged in her visual arts work. The I.R.S. argued that she did not have a profit motive and that her work as a visual artist and her work as a professor of studio art were a “single business activity” for the purposes of the tax laws. The Cravath team argued that Ms. Crile should be considered a professional working artist separate from her job as a professor and built an evidentiary record demonstrating Ms. Crile’s distinguished artistic career, her history of sales and, ultimately, her intent to profit from her artwork. The Tax Court agreed and concluded that Ms. Crile intended to profit from the sale of her art work and was therefore in the “trade or business” of art. The decision helps to clarify the definition of a “working artist” under federal tax laws, and confirms the availability of “trade or business” deductions to those who teach and also practice in an area of professional expertise.
Cravath associates Micaela R. H. McMurrough and Megan Y. Lew represented Ms. Crile at trial. The Cravath team also included associate Jun Li on litigation matters and associates Andrew Carlon and Sara L. Lykken on tax matters.
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