Calendar entries do not substantiate enterprise driving

With a view to deduct bills used whereas driving one’s private car, taxpayers are required to substantiate the enterprise mileage with a contemporaneous file, a written log or app that paperwork the bills.

It isn’t sufficient to offer calendar notations that had been produced after the very fact, noticed tax legal professional Barbara Weltman, writer of J.Okay. Lasser’s Small Enterprise Taxes 2022. She cited a current Tax Courtroom case through which a guide who made notations on his calendar couldn’t persuade the Tax Courtroom of his enterprise driving. 

Nnabugwu Eze reported earnings and bills from two units of actions on Schedule C throughout 2015 and 2016. He labored as an unbiased contractor for Nationwide Laptop Companies Consultants, a subcontractor for Northrop Grumman, and as a handyman doing development and residential enhancements for particular person prospects. None of his alleged prospects reported funds to him on Kinds 1099-MISC. The Tax Courtroom described his bills for the development exercise as vastly exceeding his reported earnings.

Eze owned three autos throughout the years at subject: a 2008 Mercedes Benz, a 2002 Ford SUV and a 2004 Chrysler. He testified that he used the Mercedes solely in connection along with his consulting enterprise, that he used the Ford solely in connection along with his development enterprise, and that he used the Chrysler solely for private and household functions. 

The IRS disallowed, for lack of substantiation, deductions for all automobile and truck bills for each years. The Tax Courtroom famous that Code Part 274(d)(4) units forth heightened substantiation necessities for “listed property,” which included any passenger car throughout 2015 and 2016. 

“No deduction is allowed for car bills until the taxpayer substantiates, by ample information or adequate proof corroborating his personal statements, the quantity, time and place, and enterprise objective for every expenditure …. Substantiation by ‘ample information’ usually requires the taxpayer to ‘preserve an account e book, diary, log, assertion of expense, journey sheets or related file’ ready contemporaneously with the usage of the car, in addition to proof documenting the expenditures.'”

In assist of his claimed deductions, Eze submitted annotated calendars for the primary seven months of 2015 and all of 2016. The annotations present the areas that he allegedly visited in reference to both his consulting or his contracting enterprise. The Tax Courtroom upheld the IRS’s disallowance of the deductions, discovering the proof to not be credible. 

Not one of the calendar entries was made contemporaneously with the alleged journey, in keeping with the courtroom. The entries had been created solely to be used throughout the IRS examination.

“He provided no clear rationalization as to when he made these entries, and he couldn’t clarify how he might have remembered these granular particulars many months or years after the very fact,” the courtroom mentioned. 

Eze provided no proof linking the areas proven on the calendars to the addresses of his consulting shoppers, in keeping with the courtroom. “He didn’t determine a single shopper who resided or labored at any specific handle. Thus, he provided no proof that, if he really made journeys to those areas, the journeys had been enterprise journeys.”

Furthermore, the odometer readings he submitted lacked reliability on their face, in keeping with the courtroom. For instance, nearly each occasion, for greater than 100 entries, is described merely as “shopper assembly.” As well as, there have been inconsistencies within the recording of distances from his dwelling in Maryland to areas in New York. 

“Not one of the calendar entries had been contemporaneous, there was no proof linking the areas proven on the calendar to the addresses of his shoppers, and the entries on their face appeared questionable,” noticed Weltman.