Election Required to Claim Itemized Deductions

A recent tax court case illustrates the importance of filing a return and electing to claim itemized deductions on that return.
The taxpayer incurred travel expenses for his W-2 job. Although he claimed he filed a tax return for the year at issue, the IRS had no record of a return being filed, and the taxpayer could not produce any evidence that he in fact filed a return.

As a result, the IRS prepared a substitute return on the basis of third-party reporting, using the standard deduction to reduce taxable income.

The taxpayer then filed an amended return claiming itemized deductions which included unreimbursed employee business expenses, but the IRS rejected the return.

The tax court noted IRC section 63(e)(1) provides that, “unless an individual makes an election under this subsection for the taxable year, no itemized deduction shall be allowed for the taxable year.” IRC section 63(e)(2) provides that “any election under this subsection shall be made on the taxpayer’s return.” In certain circumstances a taxpayer may make “a change of election with respect to itemized deductions,” but only when a return was previously filed. [IRC §63(e)(3)]

The court went on to explain that the statutory direction that an election to itemize deductions “shall be made on the taxpayer’s return” is mandatory. Thus, if an individual fails to file a return, he has made no election to itemize deductions. If no return is filed and, as a result, the IRS prepares a substitute return, then the individual has made no election and may not claim itemized deductions. Having failed to file a return and thereby having failed to elect to claim itemized deductions on the return, the taxpayer is not entitled to do so during tax court proceedings.


This case primarily affects non-filers who have had substitute returns prepared for them by the IRS. Once that happens, the taxpayer loses the ability to reduce taxes by itemizing deductions on an amended return.

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