Tax Court in Brief | Salter v. Commissioner | Substitute for Return and Itemized Deductions

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The Tax Court in Brief – April 4th- April 8th, 2022

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Tax Litigation:  The Week of April 4th, 2022, through April 8th, 2022

Salter v. Comm’r, T.C. Memo. 2022-9 |April 5, 2022 |Lauber, J. | Dkt. No. 10776-20

Short Summary: Shawn Salter was a district loss prevention manager for Home Depot. He worked from home but traveled regularly by car to the various stores. Home Depot offered reimbursement for travel expenses. Due to being laid off in mid-2013, Salter requested and received a distribution of $37,647 from his retirement plan. He had not reached the age of 59½ years at the time. He failed to file a tax return for 2013, so the IRS prepared a substitute for return on the basis of third-party reporting. The computed tax amount was offset by the standard deduction and tax withheld by Salter’s payors, which resulted in a deficiency liability of $6,109. The issues presented to the Tax Court regarded Salter’s entitlement to itemized deductions with respect to the substitute for return, computation of additional tax for the early distribution from retirement plan, and the addition to tax for failure to file.

Primary Holdings: 

Key Points of Law:

Insights: Tax deductions are a matter of legislative grace. To deduct employee business expenses, the taxpayer must have and maintain adequate records, contemporaneously made with the expense, to justify the available deduction. More fundamentally, the taxpayer—pursuant to Section 63(e)(1)— must file a return and make an election for itemized deductions; otherwise, no itemized deductions will be permitted in relation to a substitute for return. Unless a taxpayer can prove that the failure to file a return is due to reasonable cause and due to willful neglect, an additional tax may be assessed, and the IRS’s burden of production to sustain that assessment is not onerous.

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