In Uncategorized on 08/30/2022 at 17:00

Way back, in what seems another lifetime, I made the callow (not to say silly) remark that I wouldn’t cover the Section 7463 small-claimers. Man, did that earn me a lifetime’s supply of roast crow!

Here’s a couple small-claimers (hi, Judge Holmes) that tell interesting stories.

George W. Butterfield and Christina L. Butterfield, T. C. Sum. Op. 2022-16, filed 8/30/22, looks like another indocumentado unreimbursed business expenses case. But there’s a twist. Roadie construction supervisor George maybe so can beat the Reg. Section 1.274-5T(c)(3) tag for some meals and lodging. But George got travel per diem payments from his employer.

CSTJ Lewis (“My Kind Of Name”) Carluzzo needs to get it sorted out.

“Under section 62(a)(2)(A), an employee can deduct certain business expenses incurred in connection with the performance of services for an employer under a reimbursement or other expense allowance arrangement. If these expenses are reimbursed by the employer pursuant to an ‘accountable plan,’ then the reimbursed amount is not reported as wages on the employee’s Form W–2 and is exempt from withholding and payment of employment taxes. Treas.  Reg. § 1.62-2(c)(4). A reimbursement arrangement must satisfy certain regulatory requirements to be considered an accountable plan; if the
arrangement does not satisfy these requirements, amounts paid under the arrangement will be treated as paid under a ‘nonaccountable plan.’ Id. subpara. (3). Amounts treated as paid under a nonaccountable plan are included in the employee’s gross income, are reported as wages on the employee’s Form W–2, and are subject to withholding and payment of employment taxes. Id. subpara. (5). Expenses attributable to these amounts may be deducted, provided the employee can substantiate the full amount of his or her expenses. Id.

“The parties have not addressed whether the per diem payments were made under an accountable or a nonaccountable plan, and otherwise there is conflicting evidence on the point. If the per diem payments were paid under a nonaccountable plan and included in the income shown on petitioners’ return, then petitioners are entitled to deductions for meals and lodging to the extent deemed substantiated as discussed above. See id. To the extent that the per diem payments were paid under an accountable plan (or were otherwise not included in petitioner’s income from [employer]), petitioners are not entitled to a deduction for meals and lodging because they have not established that the expenses for those items exceed the amount of the reimbursement.” T. C. Sum. Op. 2022-16, at p. 6. (Citation omitted).

How to sort this out? Let George and IRS do a Rule 155 beancount, whereat they can “determine easily” which the per diems were. But if they can’t, let them come back for more trial. T. C. Sum. Op. 2022-16, at p. 6, footnote 4.

Ruben H. Domdom, Jr., T. C. Sum. Op. 2022-17, filed 8/30/22, loses his Section 911 Foreign Earned Income Exclusion, but it isn’t because of the US condo he rented, nor the US house he owned where ex-spouse and children lived, or the US bank account where he kept that foreign income. And it isn’t because of the walled enclosure in Iraq where he lived, or his limited sorties therefrom.

No, Ruben filed HOH.

CSTJ Lew puts the inside seam of the baseball on the outside corner of the plate at the knees.

“To qualify as the head of a household the taxpayer must, among other requirements, ‘maintain[] as his home a household which constitutes for more than one-half of such taxable year the principal place of abode . . . [of] a qualifying child.’ §2(b)(1)(A)(i). Section 152(c)(1)(B) provides that a child is a qualifying child of a taxpayer if,  among other requirements, he or she ‘has the same principal place of abode as the taxpayer for more than one-half of such taxable year.'” T. C. Sum. Op. 2022-17, at p. 5.

But the SNOD bouncing Ruben’s Section 911 status never contested, and IRS never pled, Ruben’s filing status. IRS only raised the issue on a post-trial motion to conform pleadings to proof, to which Ruben objected as to timing, not substance. CSTJ Lew agreed and bounced the motion, but Ruben never claimed or conceded his filing status was anything but HOH.

So since Ruben has BoP, and since he cannot have a simultaneous abode in Iraq (for the 911) and in the US (for HOH), his proof is internally inconsistent, and he loses.

But since Ruben used a paid preparer, to whom he told the whole story, he avoids the five-and-ten substantial-understatement-of-tax chop.


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