Tax Court in Brief | Wolpert v. Commissioner | Schedule C Itemized Business Expense Deductions and Substantiation

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

Wolpert v. Commissioner, T.C. Memo. 2022-70 | July 7, 2022 | Jones, J.| Dkt. No. 3182-20, 4693-20


Short Summary: Julian Wolpert (Wolpert)—a civics consultant and former Ivy League university professor—was married to Eileen Wolpert. She died in 2016, and Wolpert served as the executor of her estate. Wolpert did not maintain a separate checking or credit card account for his consulting activities. Wolpert filed a Form 1040, U.S. Individual Income Tax Return, for his and Mrs. Wolpert’s taxable year 2016 under the filing status “married filing jointly.” The return included a Schedule C, Profit or Loss From Business, for Wolpert’s consulting activities that included a number of purported business expenses, including car and truck, travel, cell phone, scanning, software, mapping, postage and freight, and miscellaneous payments-for-services expenses. Wolpert filed a Form 1040 for his taxable year 2017 under the filing status “single.” The 2017 return similarly included a Schedule C for Wolpert’s consulting activities. The Wolperts’ joint 2016 return and Wolpert’s individual 2017 return were selected for audit. The IRS issued two notices of deficiency dated November 22 and December 9, 2019, for taxable years 2016 and 2017, respectively. Due to lack of substantiation, the IRS disallowed most of the expenses reported on the Schedule C for both taxable years. Wolpert and the estate timely filed petitions challenging the determinations.

Key Issues:

Primary Holdings:

Key Points of Law:

Insights:  Another classic case of a taxpayer failing the substantiation requirements for deductions of business expenses under section 162. Wolpert and the estate failed to substantiate the car and truck expenses, the travel expenses, and purported payments-for-services expenses through adequate records required for each particular subset of expenses. Insufficient corroborating testimony was given, and generalized testimony (regarding the mileage logs and calendars) is insufficient to otherwise establish any of the required elements for deduction of these expenses. As the Tax Court noted, “None of the purported consulting projects described by Mr. Wolpert and the estate bear a logical nexus with such a stated purpose, and they did not otherwise offer an explanation.” Fortunately for Wolpert and the estate, the IRS acquiesced as to the accuracy-related penalty.