Vacation Homes, Section 280A and Bolton v. Commissioner: The Right Result for the Wrong Reasons

In response to widespread concern that many taxpayers were renting their vacation homes in order to deduct otherwise nondeductible, personal expenses, Congress in 1976 added section 280A 1 to the Internal Revenue Code. 2 By this enactment, Congress sought to limit the deductibility of vacation home expenses when a vacation home is used for both rental and personal purposes 3 by requiring taxpayers to allocate expenses associated with the vacation home between personal and rental use. Although in framing section 280A Congress set out to provide objective rules for determining that allocation, recent controversy concerning the interpretation of the section 4 demonstrates that Congress failed to draft the allocation rules with clarity. In Bolton v. Commissioner 5 the Ninth Circuit focused on the proper interpretation of the allocation rules set forth in section 280A. Rejecting the arguments advanced by the Internal Revenue Service (IRS), the court adopted an interpretation of the allocation rules favorable to taxpayers. 6 The IRS has not acquiesced in Bolton and has continued to litigate the issue -- thus far unsuccessfully. 7 Because of the number of vacation homes and the importance of section 280A, the issue is of continuing importance. 8 This note first illustrates the operation of section 280A in order to establish the relationship between its different allocation rules. 9 The note then discusses the interpretation adopted by the Bolton court and the conflicting position held by the IRS. 10 An examination of the language of the statute and its legislative ..