In Anna M. Armstrong v. Commissioner, T.C. Sum. Op. 2020-26 (Sept. 17, 2020), Judge Panuthos teaches that substantiation does not just mean showing the amount of an expense; it means showing entitlement to deduct that expense. It's an exemplary lesson in substantiation, including a review of the Cohan doctrine, and of the home office deduction. Along the way, we learn just how tax practitioners can give value to their clients: teach them that receipts are not enough.
At first glance, this case might seem unimportant because it concerns below-the-line miscellaneous itemized deductions for unreimbursed employee expenses. Section 67(g) totally disallows those types of deductions for tax years 2018-2025.
But I think this opinion is worth your time.
First, COVID. Congress might actually re-authorize the deduction of unreimbursed employee expenses for tax year 2020 as part of the next COVID relief bill. I do not have any inside knowledge on this, but some in Congress might view reviving unreimbursed employee expense deductions as a benefit to taxpayers forced to work from home during COVID shutdowns. Others might believe that Congress gave enough relief in the Economic Impact Payments. And this tax benefit is one that invites conflict and, hence, litigation. Regardless of what Congress does, those taxpayers who are independent contractors continue to qualify for a home office deduction and this opinion teaches how to substantiate that use. I give a couple of COVID thoughts at the end of the post.
Second, Judge Panuthos gives a wonderfully compact, lucid explanation of what taxpayers and their representatives need to know about substantiation. I repeatedly tell my students that when you want to understand the law, find a good trial court opinion that explains it. This is one of those opinions. It’s a great teaching case.
Finally, some readers might find current utility from these lessons because 2017 and possibly 2016 are still open years. Besides, taxpayers frequently stumble over the substantiation rules, especially for establishing a home office, whether or not they are taking deductions above or below the line. For all those reasons I invite you to continue reading....
September 21, 2020 in Bryan Camp, New Cases, Scholarship, Tax, Tax Scholarship | Permalink
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