Keeping good records pays off in auto expense deduction

A recent Tax Court case shows that keeping good auto mileage records – as well as a little persistence – pays off when it comes to dealing with the IRS.

In 2010, Ricky Ray Ressen was employed as a construction manager at Innovative Construction Solutions, Inc. (ICS).

For most of 2010, he lived away from home to carry out his job responsibilities. He would return home on weekends.

Ressen owned two different trucks that he used for commuting and for traveling between various jobsites. One of the vehicles was a 2008 Chevrolet Silverado 2500 and the other a 2007 Chevrolet Silverado. He put 11,585 business miles on the 2008 Silverado and 45,422 business miles on the 2007 Silverado.

Ressen’s employer, ICS, did not and would not reimburse him for the use of the 2007 or 2008 Silverado.

Ressen maintained both a logbook and a calendar to record his business activities and the business use of the two Silverados. He maintained, in general terms, a summary of his business activities and weekly travel in a logbook.

He recorded the beginning and ending odometer readings for the two Silverados in the logbook. He kept track of his mileage on a weekly basis on a calendar.

On Form 2106, Employee Business Expenses, Ressen claimed 100 percent of the 45,422 miles for the 2007 Silverado and 100 percent of the 11,585 miles for the 2008 Silverado as business miles. After multiplying the total miles driven times the standard mileage rate, Ressen claimed unreimbursed vehicle expenses of $28,504. He also reported additional unreimbursed employee business expense of $7,597.

Unfortunately, communication broke down between Ressen and the Internal Revenue Service, with the IRS ultimately disallowing all of the unreimbursed employee business expenses and issuing a notice of deficiency. The deficiency notice disallowed the deductions because of insufficient substantiation of the claimed miles.

Generally, the taxpayer bears the burden of proof for any claimed deduction. There is an income tax regulation that says if a taxpayer produces credible evidence about any factual issue relevant to determining the taxpayer’s tax liability for any year, the burden of proof shifts to the IRS.

The IRS has strict substantiation requirements regarding the use of trucks and automobiles. The taxpayer must substantiate by adequate records or sufficient evidence corroborating the taxpayer’s own statement:

  • The amount of the expense
  • The time and place of travel, entertainment or use of the property
  • The business purpose of the expense of other items
  • The business relationship of the taxpayer to the persons entertained or using the property

The taxpayer must also be able to establish the amount of business use and the amount of total use of the property.

Ressen provided his calendar and logbook and backed those items up in court with corroborating testimony. The burden of proof shifted from him to the IRS concerning the standard mileage deduction amount.

The court ruled in Ressen’s favor on the standard mileage deduction amount of $28,504 subject to the 2 percent miscellaneous deduction limitation.

Ressen was unable to provide any evidence regarding the other $7,597 in deductions. The burden of proof was on him to substantiate the deductions. Because he was unable to do so, the court disallowed these deductions and ruled in favor of the IRS (Ricky Ray Ressen and Rosalind Ressen v. Commissioner, U.S. Tax Court, T.C. Summary Opinion 2015-32, April 21, 2015).