Tax Court Addresses Minister Car Expenses

Ruling illustrates importance of maintaining proper records.

Richard R. Hammar, Attorney, CPA
Bio
Church Finance Today

Tax Court Addresses Minister Car Expenses

Ruling illustrates importance of maintaining proper records.

Richard R. Hammar

The Tax Court ruled that a minister could not use the “actual expense” method to compute his car expenses, since he failed to keep records to prove the percentage of total miles that he drove the car for personal reasons. Ministers, like any other taxpayer, can deduct the actual expenses they incur in using a car for business purposes. However, their business expense deduction must be reduced by a “personal use percentage”. This refers to the percentage of total miles that the car is used for personal reasons. The idea is this—expenses incurred in operating a car are deductible as a business expense only to the extent the car is used for business purposes. There is no deduction for expenses allocated to the personal use of a car. Since the minister could not establish the number of miles he drove the car for personal reasons, the personal use percentage could not be computed. This meant that the “actual expense” method could not be used to calculate the deduction for the business use of the car. The court permitted the minister to use the standard mileage rate to compute a deduction for the business use of the car. The court multiplied the standard mileage rate for the year in question times the number of miles the car was driven for business purposes.

What is the relevance of this case to church treasurers? Consider the following: (1) Church employees who use the actual expense method to compute a deduction for the business use of a car should be reminded to maintain adequate records documenting miles driven for both business and personal reasons so they can reduce their business expense deduction by the “personal use percentage.” Employees who use the standard mileage rate should be reminded to keep records to prove the number of miles a car is driven for business purposes. (2) If your church reimburses business expenses under an “accountable” arrangement, you will need to be sure that these same requirements are followed before reimbursing expenses associated with the business use of a car. Parker v. Commissioner, 65 T.C.M. 1740 (1994).

This article originally appeared in Church Treasurer Alert, April 1996.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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