Zavadil v. Comm'r of Internal Revenue Serv., No. 14-1053 (8th Cir. 2015)
Annotate this CaseZavadil organized AS and was its sole owner until he sold it to an employee stock ownership plan and received a $28,760,000 note, payable in annual installments. Zavadil served without compensation as CEO and on the board of directors. In 2004 and 2005, AS paid Zavadil’s personal expenses. Zavadil reimbursed the company monthly by personal check. AS recorded Zavadil’s personal expenses on a ledger after Zavadil used his company credit card or instructed an employee to issue a check. AS’s creditors required that all ledger accounts, including Zavadil’s, be paid off at the end of each month. In some months, however, Zavadil’s personal bank account had insufficient funds; Zavadil would write a personal check and AS brought the ledger balance to zero. At the beginning of the next month, AS advanced funds to Zavadil to cover the check, recorded the advance as an expense, and then cashed the personal check received the previous month. The IRS issued a notice of deficiency. The tax court ruled in favor of the Zavadils on charitable contributions made before July 2005, finding that Zavadil reimbursed AS and bore the economic burden; disallowed charitable deductions made later, because Zavadil did not demonstrate that he bore the economic burden; and disallowed unreimbursed expenses, finding Zavadil failed to introduce credible evidence regarding the nature and purpose of the payments. The tax court assessed deficiencies (about $260,000, with penalties) and the Eighth Circuit affirmed.
Court Description: Colloton, Author, with Loken and Shepherd, Circuit Judges] Civil case - Federal Tax. No error in denying charitable deductions taxpayer sought for lack of evidentiary support; no error in denying certain business expense deductions under 26 U.S.C. Sec. 162(a).
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