A consulting-firm owner’s tax advisor recommends the “Augusta Rule” strategy: have your S-Corp rent your personal residence for 14 days a year for board meetings, expense the rent at the corporate level, and exclude the rental income on your personal return under IRC §280A(g). The advisor quotes a number, \$1,500 per day, \$21,000 total, and says it produces a tax-free transfer of cash from the corporation to the owner. The owner signs off, the corporate ledger shows 14 monthly board-meeting rent payments to “Owner Residence,” and at filing time the rent is on the S-Corp’s return as a deduction and missing from the owner’s Form 1040.
This is the Augusta Rule the way it appears in the tax-content ecosystem. It is also the way it appears in Sinopoli v. Commissioner, T.C. Memo 2023-105, a recent Tax Court case where the strategy as deployed failed completely, the entire deduction was disallowed, and accuracy-related penalties under IRC §6662 attached. The Augusta Rule is real and legitimate; the implementation pattern most advisors recommend is not the strategy the statute supports. The gap between the two costs taxpayers tens of thousands of dollars in deductions they thought they had earned. This article walks the statute, the implementation that survives examination, and the Sinopoli failure modes that have become the IRS audit template.
What §280A(g) actually says
IRC §280A is the home-office and personal-residence deduction-limitation statute. Its general rule is that no deduction is allowed for the business use of a dwelling that the taxpayer uses as a residence, with named exceptions for actual home offices, certain rental scenarios, and the specific rule at §280A(g). That subsection provides:
Notwithstanding any other provision of this section, if a dwelling unit is used during the taxable year by the taxpayer as a residence and such dwelling unit is actually rented for less than 15 days during the taxable year, then… the income derived from such use for the taxable year shall not be included in the gross income of such taxpayer…
The statutory carve-out is narrow and specific. A homeowner who rents their residence for fewer than 15 days a year does not include the rent in gross income. The carve-out was originally enacted as a practical accommodation for Masters Tournament week in Augusta, Georgia (hence the nickname), and the IRS has consistently treated the rule as a personal-tax exclusion rather than as a business-tax planning vehicle.
The business-side leg, what makes the strategy mechanically work, is that the same dwelling can be a deductible business expense for the renter (the business) if the rent satisfies the ordinary-and-necessary test of IRC §162. A business pays \$X to rent a venue for a legitimate business purpose; that’s a §162 deduction. If the venue happens to be the owner’s personal residence, and the owner rents it out fewer than 15 days a year, the rent income falls under §280A(g) and is excluded.
The structure is legal. The two legs hold up under examination. What fails is the implementation.
Why most implementations don’t survive examination
The §162 ordinary-and-necessary leg requires that the rent be at fair market rate for a comparable venue and that the rental serve a legitimate business purpose. Sinopoli failed both. The corporate entity rented the residence at rates the court found unsupported by comparable-venue documentation; the meetings rented for were either not actually held, were perfunctory in nature, or lacked any contemporaneous documentation that would have supported a §162 deduction. The Tax Court disallowed the entire rental deduction, leaving the owners with the corporate-level deduction reversed and the personal-level §280A(g) exclusion still applicable but pointless because the structure no longer transferred any income tax-free.
The audit pattern is consistent. The IRS examines four points on every §280A(g) deduction:
Fair market rent documentation. What does it cost to rent comparable commercial meeting space in the same geographic market? The rent claimed at the corporate level should be defensible against this benchmark. Hotel meeting-room rates, executive-suite rentals, conference-center pricing, these are the comparables. A rate set without reference to market is the first issue Sinopoli and similar cases turn on.
Business purpose for each rental day. Was there an actual business meeting? Who attended? What was discussed? Are minutes or agenda available? A board “meeting” with one attendee that produced no minutes will not survive a §162 examination.
Days count. The statute requires fewer than 15 days. Renting for exactly 14 days is the legal maximum; the 15th day disqualifies the §280A(g) exclusion entirely and the full year’s rent becomes taxable personal income.
Substance over form. A pattern where the corporation rents the residence for “monthly board meetings” at \$1,500 a day with no other indicia of a real business meeting structure, same agenda each month, no attendees other than the owner, no decisions documented, is exactly the pattern the IRS looks for when applying the substance-over-form doctrine. The deduction fails not because the structure is illegal, but because the substance the structure requires never existed.
What the implementation that survives examination looks like
Three documentation practices distinguish the surviving implementations from the failing ones:
The first is comparable-rate documentation prepared before the rental occurs. The corporate-board minutes for the rental decision should reference the comparable-venue analysis: rates at Hotel A, Conference Center B, Executive Suites C in the same metro area. The rate set should be at or below the median of the comparable set, not above it.
The second is genuine business-meeting structure. Each rental day should have a calendared meeting with multiple attendees (in person, video, or hybrid is fine), an agenda set in advance, minutes captured during or immediately after, and decisions or outcomes recorded. The corporation should be conducting real business at the meeting, not staging a meeting to support a deduction.
The third is rate consistency and modest scale. The IRS audit pattern targets aggressive deployments, \$5,000-per-day rates, 14-day full-utilization, total deductions in the \$50,000-\$100,000 range per year. A modest deployment, 6-8 meetings a year at defensible market rates, sits in a much less examined band and is materially more defensible on substance grounds.
When the strategy isn’t the right answer
A meaningful share of Augusta-Rule recommendations are made to owners for whom simpler tax planning would produce comparable or better outcomes with less audit exposure. An S-Corp owner whose primary tax-savings opportunity is the reasonable-compensation salary-vs-distribution ratio (covered in yesterday’s article) should generally exhaust that planning first. A sole proprietor, without a corporate entity that needs a venue, cannot use §280A(g) at all because there’s no business-side renter. An owner who lives in a high-cost market where comparable-venue rates are genuinely high may have a defensible position; an owner in a market where comparable-venue rates are modest is starting from a weaker baseline.
The Augusta Rule is not a tax-elimination strategy. It is a specific carve-out from a deduction-limitation statute, available in a narrow set of circumstances, defensible only with documentation that matches the statute’s structural requirements. Used correctly, it produces a modest legitimate tax benefit. Used the way most advisors recommend it, without the documentation discipline the IRS examination template requires, it produces an audit-vulnerable position that may cost more than the benefit.
What to do this year
If the corporation has been using §280A(g) without comparable-rate documentation, contemporaneous minutes, and a meeting structure that survives substance scrutiny, the right move is to either bring the documentation up to standard for the current year or stop using the strategy. Bringing it up to standard takes a few hours per year. Stopping it stops the audit-vulnerability accumulation. Continuing to use it without the documentation that the statute requires is the path Sinopoli‘s taxpayers took, and the outcome of that case is on the public record.
Authority: IRC §280A(g) (less-than-15-day personal residence rental exclusion); IRC §280A (home-office and dwelling-use deduction limitations generally); IRC §162 (ordinary and necessary business expense deduction); IRC §6662 (accuracy-related penalty); Sinopoli v. Commissioner, T.C. Memo 2023-105 (recent §280A(g) abuse case); Pub 527 (Residential Rental Property); Pub 535 (Business Expenses); IRS substance-over-form doctrine as articulated in Gregory v. Helvering, 293 U.S. 465 (1935); Treas. Reg. §1.162-1 (business expense general rule).