Definition — Adding Up the Mileage

Thanks for sharing!
Image source: Skippy13 via Wikimedia Commons

Image source: Skippy13 via Wikimedia Commons

However many business miles you have to go before you sleep, you probably know you can claim a tax deduction for each of them using the standard mileage rate. But do you know the rules?

Here’s a quiz.

1.

You can use the standard mileage deduction for a vehicle you own or lease.

or

2.

You can claim some actual expenses, such as tolls, in addition to the standard mileage rate.

or

3.

The standard mileage rate includes depreciation, and the basis of your vehicle is reduced for the depreciation taken.

or

4.

You can’t use the standard mileage rate if you have taken Section 179 depreciation on your vehicle.

or

5.

If you use the standard mileage rate for the first year you use your vehicle for business purposes, you can switch to deducting actual expenses in future years. However, you cannot switch to using the standard mileage rate if you choose to deduct actual expenses in the first year.

or

Source: Revenue Procedure 2010-51

How’d you do? Ready to try your hand at another standard business mileage rule?

This one involves recordkeeping. Even though the standard mileage deduction is a simplified method of claiming auto expenses, to benefit you still have to keep adequate records or evidence establishing the amount, date, and business purpose of each trip. (Section 274(d))

Here are four situations where the issue is whether the taxpayer substantiated deductible vehicle expenses as required under section 274(d).

1.

The taxpayer, a salesman for a laboratory that provided testing for clinics performing renal services to patients, used his personal vehicle for calling on customers. He did not maintain any logs reflecting his business use of the vehicle or any other contemporaneous records of his vehicle expenses.

He testified he made business calls on certain customers at various intervals and he estimated the mileage to the customer’s places of business from some unspecified locale. He offered a reconstructed schedule of “examples” of business calls he made on behalf of his employer, including estimates that he visited certain customers 1-1/2 times per week.

The court agreed the taxpayer adequately explained and corroborated the business purpose of his calls on customers.

What do you think?

Does the reconstructed schedule meet the requirements for a deduction?

or

For a full explanation, hover your mouse over the court’s decision below.

The case: T.C. Summary Opinion 2009-151 (Wheeler)

2.

The taxpayer engaged in a business activity of picking up old newspapers and selling them to a recycling company. He would drive his truck to whatever locations he could find that had available newspapers. He maintained a mileage log wherein he recorded the date, starting and ending odometer readings, business mileage, and personal mileage for each trip with his truck.

He claimed car and truck expenses of $17,978 on the Schedule C, Profit or Loss from Business, that was included in his 2010 federal income tax return.

In 2012, an IRS examiner disallowed all of the truck expenses.

On or about August 14, 2012, the taxpayer submitted his 2010 mileage log to the IRS examination division to substantiate his truck expenses. The IRS examination division was unpersuaded by the mileage log because the entries did not reflect a business purpose or the places where the business activity occurred. The IRS asked for information regarding the places the taxpayer went.

On or about September 18, 2012, the taxpayer resubmitted his mileage log, having modified it by writing in the places where he guessed he may have gone.

Again unpersuaded, the IRS sent a notice of deficiency, dated October 30, 2012, reflecting its adjustments to his tax return.

What do you think?

Did the court decide
for the
or
for the

For a full explanation, hover your mouse over the court’s decision below.

The case: T.C. Summary Opinion 2014-29 (Houchin)

3.

The taxpayer operated his own real estate sales business and used his personal vehicle for business purposes. He claimed a deduction for $5,309 of car and truck expenses on his federal income tax return for 2009.

On May 31, 2012, the IRS disallowed all of the car and truck expenses.

On September 16, 2013, the taxpayer faxed two documents to the IRS. The first document, titled “2009 Mileage Chart”, was a handwritten list of places the taxpayer alleged he had driven to during the period March 1 through 21, 2009. The list neither indicated any business purpose for the trips nor reported the mileage traveled or the amount of each trip expense.

The second document, titled “Itemized Categories”, was a printed list of expenses for the taxpayer’s personal vehicle. This document listed purported expenses in 2009 for fuel, insurance, parts, registration, and service, and included an amount for each entry. A handwritten note on the document stated “mileage for 2009 11,135.”

What do you think?

Did the court say the documents were acceptable substantiation for the auto expenses?

or

For a full explanation, hover your mouse over the court’s decision below.

The case: T.C. Summary Opinion 2014-31 (Chapin)

4.

The taxpayer was employed as an outside direct sales representative for a cable company. His position mostly required traveling to potential or dissatisfied customers and performing various tasks based on their particular needs. He used his personal vehicle for business travel and, as per company policy, was not reimbursed for vehicle expenses. He occasionally used his vehicle for personal travel as well.

To keep track of his vehicle expenses, the taxpayer kept records in a calendar planner book. Through the year, he usually recorded his odometer readings at the start and end of each month, with some months including intermediate readings.

Besides the odometer readings, the calendar planner had some personal notes but provided no other information related to vehicle expenses. Similarly, the planner did not record any personal travel made while using the truck.

The taxpayer timely filed his 2010 federal income tax return and reported unreimbursed employee expenses on schedule A. The reported employee expenses included $20,085.50 in vehicle expense based upon 40,171 business miles driven at the standard mileage rate.

The IRS disallowed the deduction.

The court found the taxpayer’s testimony at trial describing his daily activities and responsibilities during the course of his employment credible, and was satisfied from his testimony that he traveled regularly in relation to his employment and that the calendar planner that he maintained was prepared contemporaneously.

What do you think?

Was the testimony and the calendar planner with odometer readings enough to secure the deduction?

or

For a full explanation, hover your mouse over the court’s decision below.

The case: T.C. Memo. 2014-121 (Garza)

***

Note: Taxing Lessons provides a summarized version of sometimes lengthy court decisions. The full case may include facts and issues not presented here. Please use the link provided to read the entire case.

***

Other posts you might enjoy

Definitions — Paying the piper Image source: Edmund Evans, Public domain, via Wikimedia Commons   Whether you believe the expression comes from the Pied Piper of legend or the old proverb, paying the piper does not always mean you get to call the tune. Sometimes the one who makes the rules gets to choose the music. Th...
Definition — Fun with statistics Image source: openclipart.org Keep calm, it's only statistics, and according to author Rex Stout, there are only two kinds – the kind you make up and the kind you look up. The IRS generates statistics (presumably of the second kind) at a heady pace, and the Spring 2017 Statistics of Income Bulle...
Definitions — The great depreciation   Section 179 depreciation, a tax provision that currently allows taxpayers to write-off up to $500,000 for 2016 ($510,000 for 2017), has been around long enough that you may think you're very familiar with the rules. Here's a quiz to check your knowledge. 1. In what year was section 1...
Definitions — The art of the appraisal Image source: wpclipart.com   Art may have no rules, but the Internal Revenue Service does, and some of those rules are about works of art. For example, when you donate or bequeath art, you generally need to determine the fair market value of the art. You might also need to value art whe...
Right answer!
Sorry, wrong answer :(
Right answer!
Sorry, wrong answer :(
Right answer!
Sorry, wrong answer :(
Right answer!
Sorry, wrong answer :(
Right answer!
Sorry, wrong answer :(
Sorry, wrong answer :(
Right answer!
No, the reconstructed schedule does not meet the requirements for a deduction.

The taxpayer has adequately explained and corroborated the business purpose of his calls on customers.

He has not, however, adequately substantiated the time or date and number of trips taken. His reconstruction is based on estimates and averages; obviously he did not make 1-1/2 trips in a week.

His reconstruction based on weekly trips in each of 52 weeks or monthly trips in each of 12 months, without any indication of the day of the week or month on which he made those trips, is unreliable.

Sorry, wrong answer :(
Right answer!
For the IRS.

Although the taxpayer provided his 2010 mileage log, he nevertheless failed to provide any corroborating receipts or other records that substantiated the statements made in the log. The mileage log did not address the business purpose of each trip. Guessing as to where he may have gone in 2010, the taxpayer added the places of business travel to his log in 2012.

The log was thus not contemporaneous, and the reconstruction was not reliable.

Although we believe the taxpayer had business travel expenses in relation to his recycling business, section 274(d) precludes estimates. Because the taxpayer failed to substantiate the claimed expenses as required by section 274(d), his deductions must be disallowed.

Sorry, wrong answer :(
Right answer!
 The taxpayer provided his 2009 Mileage Chart and Itemized Categories documents, which appear to be reconstructions asserting the places he traveled to for business and the vehicle expenses he incurred in 2009.

The taxpayer, however, failed to provide any corroborating receipts or other records that substantiated the statements made in these two documents.

Moreover, neither document identifies a business purpose for each trip, and both fail to show mileage. While the Itemized Categories does have a handwritten note of “mileage for 2009 11,135″, this note alone does not substantiate the mileage of each trip or show how the mileage was allocated between business and personal use.

Additionally, the 2009 Mileage Chart provides a log for only three weeks for 2009 and fails to show the amount of each trip expense.
Because the taxpayer failed to substantiate the claimed expenses as required by section 274(d), the vehicle expense deduction must be disallowed.

Sorry, wrong answer :(
Right answer!
The taxpayer elected to apply standard mileage rates and claimed a deduction for vehicle expense. He maintained a calendar planner on which he occasionally entered mileage, usually at the beginning and end of a month.

His testimony at trial describing his daily activities and responsibilities during the course of his employment was credible. We are satisfied from his testimony that he traveled regularly in relation to his employment and that the calendar planner he maintained was prepared contemporaneously.

Nevertheless, while we believe the taxpayer had business travel expenses in relation to his employment, the court must heed the strict substantiation requirements of section 274(d).

The taxpayer’s calendar planner, while contemporaneous, is not reliable substantiation for the claimed expenses because he failed to meet the criteria set out in section 1.274-5T(b)(6), Temporary Income Tax Regulations. He did not record the amount, the time, or the business purpose of each business use of his truck because, in his words, “it was just too much to do.”

Accordingly, his deduction must be disallowed.

Posted in Taxing Definitions Tagged with: , , ,