I have become increasingly reluctant to accept a nonfiler as a client. That said, a partner somehow sneaks one or two a year into Command Center, and I – reluctant or not – become involved. It would not be so bad if it was just a matter of catching-up with the paperwork, but often one needs to stave off Collections, establish a payment plan, request penalty abatement (done after the taxes are paid, meaning I have to monitor it in my spare time) and on-and-on.
Try doing this during IRSCOVID202020212022. It is zero
fun.
I am looking at a nonfiler that took a self-inflicted
wound.
Let’s talk about Shawn Salter.
Salter was a loss prevention manager over 10 Home
Depot stores in Arizona. He worked from
home but drove regularly to his stores. Home Depot offered to reimburse his
mileage, but he turned it down. He thought that claiming the mileage on his
return would give him a bigger refund.
COMMENT: Well, yes, as he was paying out-of-pocket for gasoline and wear-and-tear on his car. Clearly he is not a Warren Buffet successor.
Salter got laid off in 2013.
He took money out of his IRA to get through, but that
is not the point of our discussion today.
He needed to file a 2013 return so he could get that tax
refund, especially since he turned down the opportunity to be reimbursed.
What did he not do?
He did not file a 2013 return.
Eventually the IRS figured it out and asked for a tax
return.
Salter blew it off.
The IRS prepared a “substitute for return.” You do not
want the IRS to do this, by the way. The IRS will file you as single with no
dependents (whether you are or not), include all your gross income and do its
very best to not spot you any deductions. It is intentionally designed to
maximize your tax liability.
The IRS wanted over $6 grand in tax, with all the
assorted interest and penalty toppings.
Now Salter cared.
He told the IRS that he had used H&R Block
software to file his return.
The IRS clarified that it had no 2013 tax return,
either from H&R Block or from anyone else. Send us a copy, they said.
He did not have a copy to send. He did not have certified
mail receipts or record of electronic filing. He had nothing.
Hard to persuade anyone with nothing.
Here is the Court:
We find that the petitioner did not file a return for 2013, ...”
This created a problem.
Salter wanted to claim that mileage, meaning that he needed
to itemize his deductions.
OK.
Not OK. There is a tax issue.
Which is …?
Did you know that itemizing your deductions is
considered a tax election?
And …?
You have to file a tax return to make the election.
Easy, you say, Salter should prepare and file a 2013
return claiming itemized deductions. Doing so is the election.
Too late. That window closed when the IRS prepared the
substitute for return. The substitute is considered a return, and it did not itemize.
Remember how a substitute works: income is reported at gross; deductions are
grudgingly given, if given at all.
No mileage. No deduction. No refund. Tax due.
As we said: self-inflicted wound.
Our case this time was Salter v Commissioner,
T.C. Memo 2022-29.
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