Tax Court in Brief | Scholtz v. Commissioner | Itemized Deductions, Charitable Contributions and Unreimbursed Employee Expenses

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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

Scholz v. Comm’r, T.C. Summary Opinion 2022-5 |April 4, 2022 |Panuthos, J. | Dkt. No. 20743-19S

Short Summary: Suzanne Scholz taught courses at multiple higher education institutions throughout California. She also worked as a sales consultant for various companies. For the tax year in issue (2016), Scholz claimed $44,198 of itemized deductions, including deductions for charitable cash and noncash contributions made to individuals and organizations, vehicle repair expenses, and unreimbursed employee expenses, such as travel, meals, and entertainment expenses. The IRS disallowed about $23,000 of the claimed deductions and issued an accuracy-related penalty of $1,012. Scholz petitioned the Tax Court for redetermination.

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. 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. To deduct charitable contributions, the taxpayer must be prepared to substantiate the applicable contribution and qualification of the donee organization. Different substantiation rules apply to different forms (and amounts) of contributions. Cash contributions are substantiated differently than, for example, donations of a vehicle, and a taxpayer should take due care with the substantiation requirements to ensure the tax benefits of an act of charity remain available upon IRS audit.