There is a real rule that lets you rent your home to your own business for up to 14 days a year and pay no federal tax on the rent. Three owners of a Planet Fitness franchise used it to move $290,900 out of their S corporation in under three years. The Tax Court let about $16,500 of that stand.
Both sentences are true, and the distance between them is the point. The rule itself works. What gets built on top of it is a number somebody chose.
Start with what is real. IRC 280A(g) says that if you use a home as a residence and it is "actually rented for less than 15 days during the taxable year," the rental income "shall not be included in the gross income of such taxpayer under section 61." Fourteen days, excluded, no strings on your personal return, and any house you live in clears the residence test in 280A(d)(1) without effort. The name comes from homeowners near Augusta National renting to spectators during the Masters, which is why some call it the Augusta rule.
The pitch usually stops there, and that is where it goes wrong, because your exclusion and your company's deduction are separate questions decided under separate sections. 280A(g) settles whether you pick up the income. Section 162(a) settles whether the business writes the payment off, and it reaches only expenses that are ordinary and necessary to a trade or business. That phrase carries a limit the words do not advertise: the Fifth Circuit held in Audano v. United States that an expense is deductible only to the extent it is reasonable in amount. And that concept, the Tax Court noted, "has particular significance in dealings between related parties." You are on both sides of this lease, which is exactly when the number gets examined.
Sinopoli v. Commissioner shows the examination. Two anesthesiologists and an orthopedic representative owned the franchisee through an S corporation, and starting in 2015 it paid them rent for using their homes for business meetings: $96,400 in 2015, $113,500 in 2016, $81,000 in 2017. Each reported the rent and excluded it under 280A(g), and nobody at the IRS argued they could not.
The deduction went differently. One owner looked up local meeting-space rates, arrived at $1.83 per square foot, and applied it to the common areas of their houses, without ever appraising what those homes were worth as meeting space. The revenue agent ran his own numbers, found local space seating 500 to 1,200 people rented for roughly $500 for a full or half day, and allowed that for each meeting the owners could document. They produced no minutes, no agendas, no calendars, and the court found their testimony about how often they met inconsistent. The company had billed three meetings a month. The record supported one.
So the court priced it at market and said so bluntly: $500 a month was "actually generous," since "only small portions of the residences were used." It agreed with the IRS that the owners had "adopted a tax savings scheme to distribute Planet's earnings to petitioners through purported rent payments, claim rent deductions, and exclude the rent from their gross income relying on section 280A(g)." Of $290,900 deducted, about $16,500 survived.
The court was not hostile to the idea. The IRS had thrown out 2015 entirely for want of records, and the judge accepted that some meetings happened and restored $6,000 of it. The standard was market rate, times meetings you could prove.
Which leaves the mechanism intact and the marketing in trouble. Rent your home to your company for a real meeting, at a price a stranger would have paid, keep the minutes, and both halves hold. What fails is the version where the rent is reverse-engineered from the deduction you wanted.
Section 280A(g) makes fourteen days of rent tax-free to you. It never made the rent whatever you say it is.
If you have been pitched this one, reply with the room you would use and I will tell you what I would want in the file first.
Sources: Sinopoli v. Commissioner, T.C. Memo. 2023-105 (Aug. 14, 2023) (Goeke, J.) - https://dawson.ustaxcourt.gov/case-detail/10838-20 · IRC 280A(g), 280A(d)(1) - https://www.law.cornell.edu/uscode/text/26/280A · IRC 162(a) - https://www.law.cornell.edu/uscode/text/26/162 · Audano v. United States, 428 F.2d 251, 256-57 (5th Cir. 1970)