TaxProf Blog – Lesson From The Tax Court: The Structure Of Substantiation Requirements (June 1, 2021)

Bryan Camp has published an article on the TaxProf Blog, titled “Lesson From The Tax Court: The Structure Of Substantiation Requirements”, which discusses the outcomes of. Viola Chancellor v. Commissioner, T.C. Memo. 2021-50 (May 4, 2021) (Judge Urda). The article begins as follows:

Say you have 20 boxes of 5 different sizes.  Each size comes in 2 different colors  You can organize them in two ways.  You could create 5 groups of sizes, subdivided into 2 colors each.  Or you could create 2 groups of color, subdivided into 5 sizes each.  Or you could, like many of our clients, smash the boxes, throw then in a closet, and hope you never need them again.

Organizing boxes of deductions involves similar choices. The Tax Court keeps telling us that taxpayers bear the burden to prove their entitlement to deductions.  Taxpayers repeatedly fail to learn the lesson. Viola Chancellor v. Commissioner, T.C. Memo. 2021-50 (May 4, 2021) (Judge Urda), teaches a nice lesson on how one might organize various deductions according to the applicable substantiation requirement.  Judge Urda’s opinion addresses deductions taken on Schedule C by dividing them into two groups depending on their substantiation requirements.  Organizing deductions by their substantiation requirements is useful because taxpayers can use the Cohan rule to fill some substantiation requirements, but not others.  Spotting when and how to use the Cohan rule can be useful for tax preparation and planning, especially when your client’s dog ate the receipts — an increasingly tenuous claim in light of electronic receipts.  So I think it’s a lesson worth learning.  Details below the fold.

Click here to see the full article: “Lesson From The Tax Court: The Structure Of Substantiation Requirements.”

Posted by Bella Hoang, Managing Associate Editor, Wealth Strategies Journal.

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