Tax Court in Brief | Valentine v. Commissioner | Taxability of Military Pension and Disability Payments and Business Expense Substantiation

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The Tax Court in Brief – April 25th – April 29th, 2022

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Tax Litigation:  The Week of April 25th, 2022, through April 29th, 2022

Valentine v. Comm’r, TC Memo. 2022-42| April 28, 2022 | Gustafson, J. | Dkt. No. 6724-19

Short Summary: Tracy Valentine, a veteran of the U.S. Army, failed to timely file her 2016 Form 1040, and she did not pay any income tax for 2016 beyond the amounts that had been withheld from her wages from and retirement distributions by payors, as reported on Form W-2 and Form 1099-R. The IRS, pursuant to section 6020(b), prepared a substitute for return using information provided by third parties (i.e., those who employed Valentine during the tax year). On February 19, 2019, the IRS issued a statutory notice of deficiency of $11,034 for 2016, as well as additions to tax. On March 25, 2019, Valentine filed a 2016 return on Form 1040, through which Valentine (1) excluded $20,643 of $23,801 she had received in military retirement distributions, (2) claimed itemized business expense deductions on Schedule C, “Profit or Loss From Business,” and (3) she claimed a refund of $2,626.

Key Issues:

Primary Holdings:

Key Points of Law:

Insights: This case provides insight on the taxability or deductibility of military pensions and retirement allowances received by a retired member of the armed forces. Payments under retirement plans are generally included in income regardless of the existence of a Veterans’ Administration disability determination, except where an exception clearly applies. The case also illustrates that the U.S. Tax Court may evaluate claimed itemized business expense deductions on a trip-by-trip, item-by-item, or expense-by-expense basis to determine if a taxpayer has, for each such deduction amount, met the higher substantiation requirements of section 274 and related Treasury Regulations.


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