ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – LOSING THE ABILITY TO ITEMIZE YOUR DEDUCTIONS – THE SALTER CASE
By Robert S. Schriebman
When preparing your annual federal income tax return, you may either take the standard deduction or you may itemize your deductions. The ability to itemize deductions is a right set forth in Section 63(e) in the Internal Revenue Code. IRC Sec. 63(e) states the following:
- “Unless an individual makes an election under this subsection for the taxable year, no itemized deduction shall be allowed for the taxable year.
- Any election under this subsection shall be made on the taxpayer’s return, and the Secretary shall prescribe the manner of signifying such election on the return.”
If the taxpayer does not make the selection, the ability to itemize is gone and one must be limited to taking the standard deduction. Such was the fate of Shawn Salter. Shawn Salter v. Commissioner, TC Memo, 2022-029, (April 5, 2022).
The Salter Case
Shawn Salter failed to file his 2013 federal income tax return. After receiving several notices from the IRS and ignoring them, the IRS prepared its own version of his return and issued him a deficiency notice pursuant to IRC Sec. 6020(b). The deficiency notice determined that he had $79,000 of taxable income in 2013, but only allowed the standard deduction of $6,100 and one personal exemption of $3,900. His tax bill was almost $17,000 plus late penalties. Slater claimed that he had almost $25,000 of itemized deductions. He claimed that he filed the 2013 tax return using H&R Block software but the IRS had no record of receiving this return. Slater filed a petition in the US Tax Court arguing that he should be allowed to itemize his deductions.
What the Tax Court Said
Deductions are a matter of legislature grace, and taxpayers bear the burden of proving their entitlement to any deduction claimed. A taxpayer must show that he has met all requirements for each deduction and keep adequate books and records that substantiate the expenses underlying it. IRC Sec. 6001.
IRC Sec. 63(e) states that an election to itemize deductions, “shall be made on the taxpayer’s return.” This is mandatory. If an individual fails to file a return, he has made no election to itemize his deductions. If no return is filed and, as a result, the Commissioner prepares a substitute return, then the individual has made no election and may not claim itemized deductions. Salter did not file a return for 2013 and by operation of law he made election to itemize his deductions as required by Section 63(e). Accordingly, Salter is not allowed any itemized deductions. He is only entitled to the standard deduction that was calculated on the deficiency notice.
The Salter case is one more example of what can happen to you if you ignore IRS notices. This is especially important when it comes to the collection of taxes. Taxpayers have statutory rights to hearings to avoid enforced collection action. If these notices are ignored, the taxpayer is at peril with the IRS.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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