The taxpayer traveled for his consulting business and deducted car and truck expenses on his Schedule C, Profit or Loss From Business.
The IRS disallowed the mileage deductions on the grounds that the taxpayer failed to substantiate the mileage under the strict substantiation rules of IRC section 274(d).
Under the substantiation requirements, no deduction is allowed unless the taxpayer substantiates:
- The amount of each expense,
- The mileage for each business use of the vehicle and the total mileage for all use of the vehicle during the tax year,
- The date of each business use of the vehicle, and
- The purpose of each business use.
These elements must be substantiated using “adequate records” or “sufficient evidence corroborating the taxpayer’s own statement.”
In order to substantiate car and truck expenses through adequate records, a taxpayer must generally maintain a contemporaneous log, trip sheet, or similar record, as well as corroborating documentary evidence that together establish each required element of the expense. In the absence of adequate records, a taxpayer must establish each required element by “his own statement, whether written or oral, containing specific information in detail as to such element” and by “other corroborative evidence sufficient to establish such element.”
The court concluded that the taxpayer did not substantiate the car and truck expenses through adequate records. The taxpayer provided mileage logs indicating purported dates of vehicle use, the purported origin and destination city, the mileage of each trip, and calendars similarly indicating purported dates of vehicle use and the purported origin and destination city of each trip noted.
On brief, the taxpayer claimed that these materials were contemporaneously maintained while the IRS argued otherwise. The court found the record ambiguous as to this question of fact. The taxpayer did not explicitly testify on direct or cross-examination that these particular items of evidence were contemporaneous records, although the taxpayer did testify that he “kept a log and a calendar on a clipboard in the car.” The court noted the mileage logs appear to be printouts from a computer-generated spreadsheet rather than the original log referred to by the taxpayer and allegedly kept in the vehicle.
The court also noted that these computer-generated spreadsheets made no mention whatsoever of the business purpose of each trip nor the total mileage of all use of the vehicle during the tax year.
The taxpayer’s generalized testimony was insufficient to otherwise establish any of the required elements under the substantiation rules.
Note: Reconstructing records via a computer printout appears to be the key issue. The taxpayer’s testimony that they were based on contemporaneous records was not enough. Such contemporaneous records (if they did exist) needed to be produced during trial in order for the court to consider if they supported the taxpayer’s testimony.
