Tax Court in Brief | Rau v. Comm’r | Business Expense and Non-cash Charitable Contribution Deductions

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The Tax Court in Brief – March 7th – March 11th, 2022

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Tax Litigation:  The Week of March 7, 2022, through March 11, 2022

Rau v. Comm’r, T.C. Opin. 2022-4 | March 7, 2022 | Guy, J. | Dkt. No. 23074-19S

Short Summary: Rau, a mortgage broker, worked as a freelance real estate agent and was employed by Westmore Group, LLC (LLC). Rau managed three residential rental properties. The LLC did not have a reimbursement policy for employee business expenses. The issues are whether Rau was entitled to various deductions claimed on her Form 1040 for the tax year in issue, including noncash charitable contributions, unreimbursed employee business expenses, and other business expenses.

Primary Holdings:

Key Points of Law:

Insights:  This case illustrates the ever-important requirement of documenting what might be deductible ordinary and necessary expenses paid or incurred during in carrying on a trade or business. To deduct employee business expenses, a taxpayer must prove that he or she did not receive, nor have the right to receive reimbursement from his or her employer. The taxpayer must have and maintain adequate records, contemporaneously made with the expense, to justify the available deduction. Travel logs, odometer readings, and other contemporaneous records to show the time, place, and business purpose for an expense are critical to appropriately substantiate entitlement to a deduction for an expense incurred in carrying on a trade or business, including services as an employee. For noncash charitable contributions of clothing or a household items, the taxpayer must be prepared to show that the property was donated “in good used condition or better.”

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