Mileage log requirements clarified: [Call us for a review]:
A deduction for the ordinary and necessary expense of transportation, whether in a company vehicle or reimbursement of mileage to employees, has long been an allowable deduction for businesses. However, the recent Tax Court case, DAVID H. GARZA v. Commissioner, makes it clear that a deduction will NOT be allowed for most vehicles* unless the strict requirements of code section 274 are met.
These strict requirements would mean that a daily log be kept which shows at a minimum:
1. Business miles driven (and total miles driven for company vehicles);
2. Date; AND
3. Business purpose.
If the standard federal mileage allowance is not being taken item 1. would also require the amount of each separate expenditure with respect to [the vehicle], such as the cost of acquisition, the cost of capital improvements, lease payments, the cost of maintenance and repairs, gasoline or other expenditures.
*Vehicles, such as 18-wheelers, dump trucks, tow trucks, other heavy trucks, and certain other vehicles not generally used for personal transportation are exempted.
The decision states in relevant part:
Section 1.274-5T(c)(2), Temporary Income Tax Regs., 50 Fed. Reg. 46017
(Nov. 6, 1985), provides in relevant part that “adequate records” generally consist
of an account book, a diary, a log, a statement of expense, trip sheets, or a similar
record made at or near the time of the expenditure or use, along with supporting
documentary evidence. The strict substantiation requirements of section 274(d)
return to for vehicle expenses must be met even where the optional standard mileage
rate is used. Sec. 1.274-5(j)(2), Income Tax Regs.
The Court concluded that transportation expenses could not be allowed unless this record included all elements required by Regulation 26 CFR 1.274-5T(b)(6). The regulation can be found here: http://www.law.cornell.edu/cfr/text/26/1.274-5T
Most of you know you must have a log. If you would like for us to take a look at the logs you are keeping to insure that you have met the strict requirements of the law, we’ll be glad to arrange that. Give us a call at 859-734-0304.
[Last reviewed 8-16-18]