Tax Court in Brief | Spencer v. Commissioner | Itemized Business Deductions and Substantiation Requirements

Share this Article
Facebook Icon LinkedIn Icon Twitter Icon

Freeman Law is a tax, white-collar, and litigation boutique law firm. We offer unique and valued counsel, insight, and experience. Our firm is where clients turn when the stakes are high and the issues are complex.

The Tax Court in Brief – June 6th – June 10th, 2022

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

For a link to our podcast covering the Tax Court in Brief, download here or check out other episodes of The Freeman Law Project.

Tax Litigation:  The Week of June 6th, 2022, through June 10th, 2022

Spencer v Commissioner, T.C. Memo. 2022-8 | June 7, 2022 | Marshall, J.| Dkt. No. 17106-19S

Short Summary: This case involves the disallowance of taxpayer’s deductions regarding (1) contract labor expenses, (2) car and truck expenses, and (3) repairs, and maintenance expenses for not meeting substantiation requirements. In tax years 2016 and 2017, Brandon Spencer (Spencer) operated Home Comfort Transportation LLC (Home Comfort), a business that offered non-emergency transportation services to medical patients. As part of its business, Home Comfort purchased and maintained vehicles and had full-time and part-time drivers who were paid by check and cash, respectively. Cash compensation payments were not documented. Additionally, Spencer retained receipts for vehicle rentals, purchases and tolls, invoices from repairs, an insurance statement, and vehicle registration records. On his tax returns for years 2016 and 2017, Spencer claimed Schedule C itemized deductions for Home Comfort’s expenses, including contract labor and vehicle-related expenses. The IRS selected Spencer’s returns for examination and IRS issued a notice of deficiency (IRS CP3219A Notice) to him. Spencer filed a petition with the Tax Court and, after concessions by the IRS, the issue remaining for trial regarded deductions for expenses for contract labor and vehicle-related expenses.

Key Issues:

Primary Holdings:

Key Points of Law:

Insights:  This case is another example of a taxpayer failing to properly document and substantiate business expenses for deductions on Schedule C of Form 1040. To receive favorable tax treatment for itemized business expense deductions, Section 274 and related Treasury Regulations should be considered and honored by adequate and timely recordkeeping. For additional information on 26 U.S.C. Section 274(d) (substantiation requirements), see Freeman Law:

For additional information on Notice of Deficiency, see Freeman Law’s blog: What is an IRS Notice of Deficiency? | Income Tax Returns | Freeman Law

Tax Court Litigation Attorneys

Need assistance litigating in the U.S. Tax Court? Freeman Law’s tax attorneys are experienced litigators with trial-tested litigation skills and in-depth substantive tax knowledge, having collectively litigated hundreds of cases before the U.S. Tax Court. Our tax controversy lawyers have extensive experience in Tax Court matters involving partnership audits and litigation under both the TEFRA and BBA regimes, international tax penalties, foreign trusts, valuation, reasonable compensation disputes, unreported income, fraud penalties, other tax penalties, and many other matters. We draw on our experience and wealth of tax knowledge to advise and guide clients through the entire tax controversy process, building the right strategy to resolve tax controversies from day one. Schedule a consultation or call (214) 984-3000 to discuss your Tax Court concerns or questions.