My chronicle of how the IRS and Tax Court affect taxpayers' daily lives.

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Tuesday, September 29, 2009

Jack A. & Lettie G. Wheeler v. Commissioner., U.S. Tax Court, T.C. Summary Opinion 2009-151, (Sept. 28, 2009)

In this tax case, a salesman was denied deductions for his vehicle expenses for lack of adequate substantiation.  The taxpayer did not have a log or other contemporanious substantiation that would be required in order to allow for the reconstruction of his mileage log.

The IRS dictates that a taxpayer must substantiate the amount of expense, time and place of business use of the vehicle, and the business purpose of the travel.  This is the minimum allowable proof to show business purpose and use of a vehicle.  In this Tax Court case, the court admitted that:
the taxpayer has adequately explained and corroborated the business purposes of his calls on customers during 2005.  He has not, however, adequately substantiated th etime or date and number of trips taken.  His reconstruction is based on estimates and averages ..."
Two things could have been done to alleviate this taxpayer's situation.  First, he could have settled with appeals, using the same estimates and averages.  Appeals has a much stronger ability to settle on an issue than an initial auditor, or tax court.  Each of the latter must apply, strictly, the Internal Revenue Code to the taxpayer's situation.  Appeals, however, has added flexibility. 

Secondly, he could have kept a calendar.  Most recreations are allowed from keeping an appropriate, and timely, calendar.  This calendar would show where he went on which days.  So long as it was contemporaneous, there is a good chance the IRS our court would have been able to look to this as backup for the taxpayer's claims.

Aaron's Tip of the Day:  If you cannot bear to keep an appropriate mileage log, keep and maintain a calendar.  If your calendar is digital, be sure to keep a proper archive, or printout your activity and keep it in a safe place.  This printout is just as valuable as your bank statements and receipts. 

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Aaron Blau, E.A. is the Vice President of the Central Arizona Chapter of Enrolled Agents and a member of the Government Relations Committee of the National Association of Enrolled Agents. The opinions and ideas expressed here are in no way representative of the official position of the National Association of Enrolled Agents, Arizona Society of Enrolled Agents or the Central Arizona Chapter of Enrolled Agents.

For official comments, please e-mail NAEA Director of Communications at or Arizona Society president

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