UPDATE, May 28, 2018: With the enactment of the Tax Cuts and Jobs Act of 2017, the tax deduction for moving expenses has been dramatically limited. Now relocation costs are limited to military personnel who are on active duty and who move pursuant to a military order related to a permanent change of station. Civilians now get no tax break for their moving expenses, even when work-related.
Work-related moving expenses are tax deductible. You don't even have to itemize. The claim is made as one of the adjustments to income, generally referred to as an above-the-line deduction, right on the long Form 1040.
Vintage moving van | Alden Jewell via Flickr
But don't think just because this is a relative easy tax write-off that the Internal Revenue Service will just give the claim a cursory glance. IRS examiners will be looking. Just as Giliard Schwartz.
A really big move: The San Antonio, Texas, woman claimed $330,000 in moving expenses on her 2012 tax return. Instead of that reducing her tax bill, under a U.S. Tax Court ruling issued May 24, Schwartz now has to pay Uncle Sam $33,107.20.
You can read the full ruling by Special Trial Judge Robert N. Armen, Jr., at your leisure. If you're in a hurry, though, here's a quick rundown.
Schwartz claimed more than $300,000 in connection with a work related move. Her math goes like this:
$300,000 for transportation and storage
+ 50,000 in travel expenses
- 20,000 in moving expenses covered by her employer
= $330,000 net income adjustment
That above-the-line deduction, along with Schedule A itemized deductions that Schwartz claimed (and which the IRS did not question), resulted in Schwartz reporting no taxable income for 2012. In fact, according to the court document, her return that year showed -$240,442 or (240,442) if you want to use the accounting notation for negative numbers.
Excessive claims tempt the tax auditor: Claiming so many deductions, even those which the IRS didn't focus on, and ending up with, as the Tax Court noted, "a large amount" of negative income was Schwartz first mistake. She had to know that would attract IRS attention.
Heck, even Judge Armen said in his ruling, "Not surprisingly, petitioner's 2012 income tax return was selected for examination."
But then Schwartz went and compounded things. Armen also points out that:
"… neither during the examination phase of this case, nor the administrative appeal phase of this case, nor the litigation phase of this case did petitioner [Schwartz] ever respond to requests for substantiation of her alleged moving expenses, and petitioner essentially ignored respondent's personnel during these three phases of the case."
You read right, folks. Schwartz didn't offer any documentation of her claimed moving expenses. She basically, according to the Tax Court, ignored IRS auditors and their requests during the examination and legal processes.
Judge says 'no': It doesn't take tax or law degrees to see that things weren't going to go Schwartz's way.
She's been ordered to pay Uncle Sam $19,256 in tax owed based on her unsubstantiated moving claims, a penalty of $3,851.20 on that amount, plus another $10,000 penalty for what the judge deemed were delaying actions under Internal Revenue Code §6673(a).
That's also the IRC section that allows for penalties to be assessed for what is determined to be frivolous tax claims.
However, in light of the Tax Court decision, I suspect there's no frivolity at all in Schwartz relocated, but not tax deductible, household.
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