Tax Court In Brief | Valentine V. Commissioner | Taxability Of Military Pension And Disability Payments And Business Expense Substantiation

Published date02 May 2022
Subject MatterEmployment and HR, Tax, Discrimination, Disability & Sexual Harassment, Retirement, Superannuation & Pensions, Income Tax
Law FirmFreeman Law
AuthorFreeman Law

The Tax Court in Brief - April 25th- April 29th, 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 April 25th, 2022, through April 29th, 2022

  • Sestak v. Comm'r, TC Memo. 2022-41| April 25 2022 | Weiler, J. | Dkt. No. 17285-18

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

Opinion

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:

  • Whether Valentine may exclude a portion of her retirement distributions from gross income?
  • Whether Valentine is entitled to certain business expense deductions claimed?
  • Whether she is liable for the section 6651(a)(1) and (a)(2) additions to tax determined by the IRS?

Primary Holdings:

  • A retired service member may exclude a portion of retirement distributions in an amount equal to the benefit that the individual "would be entitled to receive as disability compensation from" the Veteran's Administration, but only if the individual is not currently receiving excludable disability benefits from the VA, as Valentine was receiving. And, Valentine made no showing that she had a "combat-related injury," which may have permitted Valentine to exclude the retirement distributions from gross income.
  • Valentine failed to keep detailed logs and records of her business travel and expenses as required by the Code and the regulations. Thus, she failed to meet the higher substantiation requirements for deduction of expenses for travel, meals, and lodging.
  • Yes, Valentine was liable for the additions to tax for her failure to timely file. Her testimony that she could not find an accountant was insufficient to establish reasonable cause for failure to file.

Key Points of...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT