Taxing Lessons From Court Decisions

Recordkeeping Redux, with Humor

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LogbookImage source: Minh Nguyễn via Wikimedia Commons

You can’t read many tax court decisions without coming to the realization that lack of good records is a continually recurring issue. Each petitioning taxpayer seems to believe his or her situation is special and will be the exception that will make the court overlook the strict substantiation requirements of section 274(d) (documenting the use of listed property, such as cars).

T.C. Summary Opinion 2010-102 (Moore) is another example of this misguided belief.

The taxpayer had a full time government job as a computer analyst, and also worked as a real estate broker and a mortgage broker. Naturally, he used his vehicles for business purposes, and claimed deductions for that use. He also claimed the vehicles (two of the three he owned) were used exclusively for business, and his mileage log (a computer spreadsheet) contained no personal mileage other than commuting to his full time job.

In his words, “any time you’re moving, you’re actually in business.” So, for example, “when you drive to the grocery store, you will transact business.”

That presumably explained why his spreadsheet/log contained entries for almost every day of the year, including commuting miles for days his government employer designated as holidays.

Sadly for him, the court found “petitioner’s theorem regarding the transmutation of nondeductible personal expenses into deductible business expenses through kinesis to be so fundamentally flawed that we reject it without further discussion.”

Moving on to a consideration of the proffered mileage logs, the court was “unable to accept those logs at face value because we are not convinced that they reliably record petitioners’ use of their automobiles.”

The result: An increase in federal income tax of $11,299.99, an addition to tax of $2,063.55 for failure to timely file a tax return, and an accuracy-related penalty of $2,260.

Taxing Lesson: There is no special exception to the requirement for keeping auto logs.


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