The fourth circuit, in a per curiam opinion, has affirmed a Tax Court decision holding that an individual was engaged in the trade or business of writing about prostitution, but that he failed to adequately substantiate all his expenses and may not deduct his cash payments to prostitutes because the payments were "personal in nature."

In 1992, while employed full-time, Ralph Vitale began writing fiction in a anticipation of his 1997 retirement. In 1993, he began researching a story about legal brothels in Nevada by visiting numerous brothels, paying prostitutes in cash, and keeping a detailed journal of the visits. He submitted the manuscript to a joint-venture publisher, paying $4,375 to publish and market 10,000 copies of the book. Vitale actively participated in the production and marketing of the book and received $2,600 in royalties in 1996. The publisher filed for bankruptcy in 1996. Vitale filed a proof of claim for unpaid royalties and secured the return of his rights to the book. He then began marketing the book to publishers and literary and script agents.

The IRS disallowed Vitale’s writing-related deductions for 1993-94, asserting that he didn’t have a profit motive and didn’t substantiate that he claimed deductions were ordinary and necessary business expenses. The Tax Court disagreed, finding that Vitale did have a profit motive for writing, but denying most of the claimed deductions for a look of substantiation. Ralph Louis Vitale, Jr. v. Commissioner, No.00-1166 (4^th Cir. June 21,2000)