After conducting a two-year audit of a church volunteer and consultant, the Internal Revenue Service concluded that the individual being audited had understated her income tax liability by $55,000. The taxpayer appealed to the United States Tax Court. In Barnes v. Commissioner, T.C.Memo, 2016-212, the Tax Court addressed a number of issues, including the proper substantiation of car expenses, internet expenses, supplies, and charitable contributions. The Court's treatment of these expenses is instructive and is summarized in this article.
Deductions for the business use of a car are subject to strict substantiation requirements described in section 274(d) of the tax code. Section 274(d) allows taxpayers to substantiate expenses incurred in the business use of a car either by tracking the actual expenses of using the car, or by multiplying business miles driven by a standard mileage rate set by the IRS.
If a taxpayer chooses to use the standard mileage rate, then he or she must be able to substantiate (1) the mileage of each business use and the total business and nonbusiness mileage during the taxable year, (2) the date of each business use of the vehicle, and (3) the "business purpose of each use" of the vehicle. All expenses must be substantiated using "adequate records or sufficient evidence corroborating the taxpayer's own statement."
To meet the "adequate records" requirements of section 274(d) for vehicle expenses, a taxpayer choosing the mileage-rate option must maintain: