Howard Shih was dating Jue-Ya Yang when he invited her to move in with him. For a year she lived in his home and occasionally helped with chores. Shih gave Yang $10,500 in checks for personal and household expenses.
When tax time rolled around, Shih decided to claim a deduction on the $10,500. On a Form 1099-MISC, Miscellaneous Income, he claimed the $10,500 was wage income. Yes, he considered his live-in girlfriend an employee.
So one would imagine that Shih would get in trouble with the IRS.
Nope. Yang did, for not reporting the “income.”
Fortunately, the US Tax Court has now ruled against Shih. They held that the $10,500 in payments made during 2005 was a gift and not reportable as income.
The court did not buy Shih’s assertions under oath that he could not remember any dates or romantic encounters with Yang.