Tax Court Addresses Substantiation of Car Expenses
Treasurers should be aware of strict substantiation requirements.

Background. A taxpayer ("Fred") claimed a deduction for automobile mileage expenses of $7,500 on his federal tax return. The IRS disallowed any deduction due to a lack of substantiation. The Tax Court agreed. It noted that the tax code "imposes strict substantiation requirements" for deducting expenses relating to the business use of a car, and "no deduction is allowable on the basis of any approximation or the taxpayer's unsupported testimony." The court noted that substantiation of the business use of a car requires "adequate records, or sufficient evidence corroborating the taxpayer's own statement, showing the amount of the expense, the time and place of the use of the listed property, and the business purpose."

Fred had claimed a mileage expense deduction by multiplying the standard mileage rate times miles he claimed that he drove for business purposes. The court pointed out that use of the standard mileage rates "serves only to substantiate the amount of expenses and not the remaining elements of time and business purpose." It noted that Fred relied on a computer printout "mileage log" with daily listings of business trips identified only by abbreviations under a column entitled "client." Fred insisted that all of the business miles listed on the mileage log were "related" to his employment. However, the court concluded that "nowhere does the record reveal the … the business purpose of each trip recorded on the mileage log," and as a result it ruled that Fred was not entitled to any deduction for the business use of his car because of his failure to comply with the substantiation requirements.

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Posted: September 3, 2001

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