The Tax Court in Brief – March 7 – March 11, 2022
Freeman Law’s “Tax Court Brief” covers all of the Tax Court’s substantive opinions, providing a weekly summary of its decisions in clear, concise prose.
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Tax litigation: the week of March 7, 2022 to March 11, 2022
Hacker c. Comm’r, memo from TC. 2022-16 | March 8, 2022 | Paris, J | Dekt. No. 3870-12
Cosio c. Comm’r, TC Memo. 2022-18 | March 9, 2022 | Weiler, J. | Dekt. No. 23623-17L
Sherwin Community Painters Inc. v. Comm’r, memo from TC. 2022-19 | March 9, 2022 | Goeke, J. | Dekt. Nos. 4113-19, 4647-19 (consolidated with
Ward vs. Comm’r)
Rau v. Comm’r, TC Opin. 2022-4 | March 7, 2022 | Guy, J | Dekt. No. 23074-19S
Short summary: Rau, a mortgage broker, worked as an independent realtor and was employed by Westmore Group, LLC (LLC). Rau managed three residential rental properties. The LLC did not have an employee business expense reimbursement policy. The issues are whether Rau was entitled to various deductions claimed on his Form 1040 for the tax year at issue, including non-monetary charitable contributions, unreimbursed employee business expenses, and other business expenses.
- Rau’s mileage logs were insufficient to justify deducting mileage expenses because they lacked necessary information such as where a trip originated, its precise destination, and business purpose. Rau also provided insufficient information on meal expenses as the records were not prepared at the same time and did not identify a business purpose. And, for her non-monetary charitable contribution, Rau failed to present objective and credible evidence that the non-monetary household items she donated were “in good, used condition or better,” as required to qualify. a deduction for charitable contribution.
Main points of law:
- Section 162(a) allows the deduction of “all ordinary and necessary expenses paid or incurred during the year of taxation in the exercise of a trade or business”. The term “trade or business” includes the provision of services as an employee.
- Typically, a cash basis taxpayer deducts expenses for the year from the payment. To deduct an employee’s business expenses, a taxpayer must prove that he did not receive and was not entitled to receive reimbursement from his employer.
- The taxpayer is responsible for establishing his right to authorized deductions and justifying the amounts claimed. To see 26 USC § 6001; Treasures. Reg. § 1.6001-1(a).
- For travel expenses (including meals and accommodation away from home), no deduction is allowed unless the taxpayer justifies by adequate records or by sufficient and credible evidence corroborating his own declaration the amount, the time, place and business purpose of each expense. See id. at § 274(d); Treasures. Reg. § 1.274-5T(b)(2)(ii)-(iii).
- Expenses for incidental repairs to an investment property may be deducted under section 162 by a taxpayer on a cash basis when paid, while capital improvements are added to the basis of the investment property and recovered on the sale of the property under section 263.
- Charitable donations are deductible only if verified in accordance with regulations. No deduction is allowed for any contribution of clothing or household items – such as furniture, furnishings, electronics, appliances, linens and other similar items – unless such items are “in good used condition or better”. § 170(f)(16)(A), (D)(i).
Knowledge: This case illustrates the ever-increasing requirement to document what might be ordinary and necessary deductible expenses paid or incurred in carrying on a trade or business. To deduct an employee’s business expenses, a taxpayer must prove that he has not received or is not entitled to receive reimbursement from his employer. The taxpayer must have and maintain adequate records, made at the time of the expense, to substantiate the available deduction. Travel logs, odometer readings and other contemporaneous documentation showing the time, place and business purpose of an expense are essential to properly substantiate entitlement to a deduction for an expense incurred in the carrying on a trade or business, including services as an employee. For non-monetary charitable contributions in the form of clothing or household goods, the taxpayer must be prepared to show that the property was donated “in good used condition or better”.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.