New Indiana Child Support Case: Rental Income (Saalfrank v. Saalfrank)

Saalfrank v. Saalfrank (PDF format) provides an example of what not to do when calculating rental or other self-employment income.

Mother argues that the trial court should have based its calculation upon the rent
actually received from her mother, rather than including any value she gave her mother as a gift. During the hearing, she stated,

she pays me $675 a month. In order to be able to deduct my expenses I have to claim to the best of my ability what I figure should be the more fair market value. The difference between that is written off as a gift.

Transcript at 57. Mother‘s 2006 tax return indicated that she considered the fair market value for renting the house to be $1025 per month, rather than the $675 per month she actually received. The Guidelines require that expenses ―should be carefully reviewed to restrict the deductions to reasonable out-of-pocket expenditures necessary to produce income.‖ Child.Supp. G. 3(A)(2). While making a gift to one‘s mother is admirable, it does not produce income, it reduces it. The trial court‘s finding was within the evidence submitted. Accordingly, the trial court did not abuse its discretion by basing its calculation of rental income upon Mother‘s own estimate of fair market value, rather than an admittedly

benevolent transaction with a family member.

Another reason to look at income tax returns. I cannot imagine trying to persuade a court that a gift to mother was a reasonable business expense - especially when opposing counsel has a copy of the client's tax returns in their hands.

If you are going to claim business expenses make sure that they are not contradicted by income tax returns or financial statements. Make sure that those expenses are also backed up by proper documentation.

Remember, if you want more information about retaining me for a case, please give me a call at 765-641-7906.