Scenario for a summary report

Scenario: You are assigned to review the case of a single taxpayer, Elizabeth McDonald. Ms. McDonald works full-time as an HR coordinator and has reported several itemized deductions on her Form 1040, Schedule A. She is itemizing her deductions because she believes they exceed the federal standard deduction amount.

 

You are a Tax Compliance Officer and your supervisor has asked you to review the materials provided by Ms. McDonald to determine whether the deductions she provided are appropriate. There are initial concerns that she has incorrectly itemized personal expenses. Ms. McDonald has provided you with receipts to support the deductions she has taken. You are to determine whether her itemized deductions are appropriate and document the reasons for your determination.

 

Please review the materials and write a summary report. In your report, you should use the facts from the materials provided by Ms. McDonald to support your conclusions regarding which itemized expenses are allowed. You should describe whether you would allow the expenses contained within each receipt provided and explain why. Your report should include a summary of the facts, a decision related to each receipt along with an explanation for each decision, and your conclusion regarding this case.

 

Below are some relevant guidelines to help you determine whether to allow the itemized expenses provided:

• Receipts must be legible.
• Receipts must be for the year under audit.
• Taxpayers cannot deduct everyday living or household expenses.
• The calculated amounts listed on the 1040—Schedule A must be accurate.
• Any checks written as donations must be from the taxpayer.
• Itemized deductions of medical expenses must be in the amount of the taxpayer portion (insurance contributions should be excluded).

The five documents that comprise the materials for review include the following:

 

• Form 1040 – Schedule A: Ms. McDonald’s completed Form 1040—Schedule A. 
• Receipt 1: A donation receipt from Goodwill in the amount of $2,300 for various noncash items donated.
• Receipt 2: Medical expenses from an injury Ms. McDonald sustained.
• Receipt 3: An invoice for cleaning materials purchased from a cleaning supply store.
• Receipt 4: A receipt from a donation made to a local children’s charity.

Form 1040 Schedule A

 

Description

 

The Schedule A of Form 1040 below contains a list of lines which identify possible itemized deductions. For each line, there is a line number, an account description, the line number repeated, and the amount for the line (if any). 

 

Schedule A (Form 1040): Itemized Deductions           

Department of the Treasury Internal Revenue Service 

 

Tax Year: 20X9

Name(s) shown on Form 1040 or 1040-SR: Elizabeth McDonald

Your social security number: 123-X2-3333

Line Number	Line Description	Line Number	Amount
	Caution: Do not include expenses reimbursed or paid by others.
1	Medical and dental expenses (see instructions)                                                     1 [507]
2	Enter amount from Form 1040 or 1040-SR, line 8b               2 [42,598]
3	Multiply line 2 by 7.5% (0.075)                                                                                3 [3,195]
4	Subtract line 3 from line 1. If line 3 is more than line 1, enter -0-	4	507
	Lines 5 through 10 are not shown here. There are no amounts for Lines 5 through 10.
11	Gifts to charity by cash or check. If you made any gift of $250 or more, see instructions     11 [12,000]
12	Gifts to charity other than by cash or check. If you made any gift of $250 or more, see instructions. You must attach Form 8283 if over $500.                                   12 [2,300]
13	Carryover from prior year                                                                                        13 [       ]
14	Add lines 11 through 13	14	14,300
15	Casualty and theft loss(es) from a federally declared disaster (other than net qualified disaster losses). Attach Form 4684 and enter the amount from line 18 of that form. See instructions.	15
16	Other - from list in instructions. List type and amount  >>  [Cleaning Materials $116]	16	116
17	Add the amounts in the far right column for lines 4 through 16. Also, enter this amount on Form 1040 or 1040-SR, line 9	17	14,923
18	If you elect to itemize deductions even though they are less than your standard deduction, check this box  >>  [  ]

 

 

Receipt 1

 

GOODWILL

 

DONATION RECEIPT

TAX RECORD FORM

 

Name: Elizabeth McDonald

 

Donations	Value
Clothes, Shoes	$300.00
3 Beds with bed frames	$1,200.00
Kitchen supplies and appliances (knives, cutting boards, blender, microwave, magic bullet)	$800.00
Total	$2,300.00

 

 

 

 

____Johnny Leroux_______________                              8/24/20X8

Goodwill Representative Signature                              Date

 

 

Receipt 2

 

MEDICAL PAYMENT SUMMARY

 

To: Elizabeth McDonald

From: Dr. Randy Rodriguez & Associates

Date: 1/4/X0

 

Date	Description	Charges	Adjustments	Payments	Balance
12/12/X9	Revision of Nose	$4,115.00	$2,460.90	$1,255.22	$398.88
12/12/X9	Reconstruct Cleft Palate	$3,172.00	$2,534.40	$510.08	$127.52
12/12/X9	Derm Autograft Face/MCK/MF/G	$2,377.00	$1,899.13	$382.30	$95.57
12/12/X9	Repair of Wound or Lesion	$1,170.00	$934.92	$188.07	$47.01

 

 

Date	Description	Amount
12/12/X9	Total amount due	$507.37
12/28/X9	Payment received (ending in xxxx-3509)	-507.37
12/28/X9	Remaining Balance	$0.00

 

Amount Received (ending in xxxx-3509): $507.37

Total Balance: $0.00

Insurance Pending: $0.00

Amount Due Now: $0.00

 

 

Receipt 3

 

PRECISION CLEANING SUPPLY

 

Customer: Elizabeth McDonald

Salesman: Rodney Damien

Date: 6/20/X9

Pick Ticket: 56174

 

 

Quantity	Units	Item Description	Unit Price	Line Total
1	Ea.	CleanPro Cleaner	$86.59	$86.59
2	Ea.	All-purpose Wood Cleaner	$10.24	$20.48

 

Tax: $8.83

Total: $115.90

 

____ Rodney Damien ________                                         6/20/20X9

Signature                                                                     Date

 

 

 

Receipt 4

 

ACKNOWLEDGEMENT LETTER

 

Date: 12/31/X9

 

Angels for Teens

1234 Main St.

Austin, TX 78652

 

Dear Elizabeth McDonald,

 

Thank you so much for your very generous donation of $12,000 to the Angels for Teens Football Event. Your gift will go a long way in providing for the event. Specifically, this will help us cover the location rental, additional tables and chairs, security staff, and snack foods.

 

Thank you once again. Sincerely,

Angela Martin, Director

 

Receipt Information

Date: 12/14/X9

Amount: 12,000.00

 

[  ] Case           [  ] Money order          [  ] Credit card             [X] Check

 

Received from: Elizabeth McDonald

For payment of: Angels for Teens Football Event