Car - law requirements for recordkeeping

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Internal Revenue Code Requirements  Essential Elements Character of Record in General Character of Records for Each Element   Summary

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This entire site is for educational or informational purposes only.   You are not to use the forms, concepts, strategies, or knowledge without assistance from a professional.   The author, the corporation, the ISP, Bob Parrish CPA, Bob Parrish CPA, P.C. or other parties related to those or this site do not guarantee or warrantee in any manner the suitability, usefulness, accuracy, timeliness, or results of any portions of this site, nor the links contained in this site which link to other areas.   At times, information is taken from other sources and is believed to be accurate, but no verification or confirmation is performed.  Furthermore, if any federal or state law invalidates a portion of this disclaimer, the other portions still apply.   In addition, any allegations or actions are restricted to arbitration only and must be arbitrated by the Better Business Bureau in Sarasota Florida.  Reading of these pages constitutes complete acceptance and agreement with all disclaimer provisions on all pages of this site. .......

Thursday, February 22, 2007 11:45 AM

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Car -   law requirements for recordkeeping

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Internal Revenue Code Requirements  Essential Elements Character of Record in General Character of Records for Each Element   Summary

The taxpayers maintain there was business use of personal automobiles. There are methods of reliable reconstruction of business mileage at this date.

Percentage of business use is necessary only in the instance that actual costs are being claimed. Therefore, Percentage of business use is not relevant in this claim. You were presented the interest on the automobile loan. The taxpayer and the representative presented this in the context of being expedient and hoping to settle this claim quickly, and effortlessly. It would seem reasonable to allow the deduction of the loan – and realizing there is business use, and the business can be proven and substantiated.

If the policies of the Service prevent you or do not allow you to use judgement in the process then the taxpayer will claim the deduction in the character of the number of miles and use the allowable rate for each of the years in this claim. This method, in my judgement will provide a much larger deduction for the taxpayer than you are allowing.

If you need documentation, then the taxpayers and the representative of the taxpayers will weigh the cost of the additional assessment against the cost of producing those records for you.

It is the intention of the representative to expend the time and effort necessary to protect the taxpayer’s deductions and claims.

The internal revenue code does mention what information is to be recorded and proven. The internal revenue code and related regulations mention that more reliability should be placed upon documents prepared at a time that is near the occurrence of the business use. Furthermore, the internal revenue code provides other methods the taxpayer may use in determining and proving the business use of personal automobiles. The internal revenue code makes no definition for the methods of recording the necessary and essential items of information. In addition, the code includes a provision that provides the taxpayer permission to use documents in the client’s records (or other party’s records) which establish the essential elements proving the business use. In all probability, I believe that any oversight party would agree that the code was written to allow taxpayers some latitude in each person’s own recordkeeping. Additionally, the code was written with the intention of encouraging a taxpayer to keep the records of the essential elements in order to foster compliance with these code sections and related regulations. To focus on only a portion of the written code would be tantamount to mitigating or at the least diminishing the intent of code itself. In addition to written records, you are permitted to permit oral representations of the taxpayer.

[Reg 1.2745T(b)(6)]

Reg 1.2745T(b) (6) Listed Property.

The elements to be proved with respect to any listed property are--

1.274-5T(b)(6)(i) Amount

1.274-5T(b)(6)(i)(A) Expenditures.

The amount of each separate expenditure with respect to an item of listed property, such as the cost of acquisition, the cost of capital improvements, lease payments, the cost of maintenance and repairs, or other expenditures, and

1.274-5T(b)(6)(i)(B) Uses.

The amount of each business/investment use (as defined in § 1.280F-6T (d)(3) and (e)), based on the appropriate measure (i.e., mileage for automobiles and other means of transportation and time for other listed property, unless the Commissioner approves an alternative method), and the total use of the listed property for the taxable period.

1.274-5T(b)(6)(ii) Time.

Date of the expenditure or use with respect to listed property, and

1.274-5T(b)(6)(iii) Business Or Investment Purpose.

The business purpose for an expenditure or use with respect to any listed property (see § 1.274-5T(c)(6)(i) (B) and (C) for special rules for the aggregation of expenditures and business use and § 1.280F-6T(d)(2) for the distinction between qualified business use and business/investment use).

See also § 1.274-5T(e) relating to the substantiation of business use of employer-provided listed property and § 1.274-6T for special rules for substantiating the business/investment use of certain types of listed property.

The taxpayer has the flexibility to keep records in his own format and to offer records that substantiate the above elements in the format of his choice. First we shall address the issue of whether the taxpayer has alternatives and taxpayer rights to maintain records for his business in a manner which is convenient for him, still maintain the proof of the essential elements and concurrently furnish records which are not defined in the Code but establish all the facts and circumstances of the essential elements.

Incomplete records. If the taxpayer does not have adequate records to prove an element of an expense, then s/he may prove the element by: [Reg 1.274A5T(c)(3)]

1) His or her own statement, whether written or oral, containing specific information in detail as to the element, and

2) Other supporting evidence sufficient to establish the element.

 

Substantiation By Other Sufficient Evidence

1.274-5T(c)(3)(i) In General.

If a taxpayer fails to establish to the satisfaction of the district director that he has substantially complied with the "adequate records" requirements of paragraph (c)(2) of this section with respect to an element of an expenditure or use, then, except as otherwise provided in this paragraph, the taxpayer must establish such element--

1.274-5T(c)(3)(i)(A) By his own statement, whether written or oral, containing specific information in detail as to such element; and

1.274-5T(c)(3)(i)(B) By other corrobative evidence sufficient to establish such element.

If such element is the description of a gift, or the cost or amount, time, place, or date of an expenditure or use, the corrobative evidence shall be direct evidence, such as a statement in writing or the oral testimony of persons entertained or other witnesses setting forth detailed information about such element, or the documentary evidence described in paragraph (c)(2) of this section. If such element is either the business relationship to the taxpayer of persons entertained, or the business purpose of an expenditure, the corrobative evidence may be circumstantial evidence.

In some cases, circumstantial evidence may support the amount of business and investment use. For example, the nature of the work, such as deliveries, provides circumstantial evidence of the fact that the taxpayer may use to prove the car for business purposes. Invoices of deliveries, court dates for an attorney, depositions for an attorney, etc. establish when the taxpayer used the car for business. [Reg 1.274A5T(c)(3)(i); Reg 1.274-5T(c)(2)(B)]

 

(B) Substantiation Of Business Purpose.

In order to constitute an adequate record of business purpose within the meaning of section 274(d) and this paragraph (c)(2), a written statement of business purpose generally is required. However, the degree of substantiation necessary to establish business purpose will vary depending upon the facts and circumstances of each case. Where the business purpose is evident from the surrounding facts and circumstances, a written explanation of such business purpose will not be required. For example, in the case of a salesman calling on customers on an established sales route, a written explanation of the business purpose of such travel ordinarily will not be required. Similarly, in the case of a business meal described in section 274(e)(1), if the business purpose of such meal is evident from the business relationship to the taxpayer of the persons entertained and other surrounding circumstances, a written explanation of such business purpose will not be required.

Sampling. The taxpayer can maintain an adequate record for parts of a tax year and use that record to substantiate the amount of business or investment use for the entire year if the taxpayer can demonstrate by other evidence that the periods for which an adequate record is kept are representative of the use throughout the tax year. [Reg 1.274Ä5T(c)(3)(ii)]

Destroyed records. The taxpayer can prove a deduction by reconstructing the records or expenses if the taxpayer cannot produce a receipt for reasons beyond his or her control, such as fire, flood, or other casualty. [Reg 1.274A5T(c)(5)]

§1.274-5T(c)(2)(C) Substantiation Of Business Use Of Listed Property

1.274-5T(c)(2)(ii)(C)(1) Degree Of Substantiation.

In order to constitute an adequate record (within the meaning of section 274(d) and this paragraph (c)(2)(ii)), which substantiates business/investment use of listed property (as defined in § 1.280F-6T(d)(3)), the record must contain sufficient information as to each element of every business/investment use. However, the level of detail required in an adequate record to substantiate business/investment use may vary depending upon the facts and circumstances. For example, a taxpayer who uses a truck for both business and personal purposes and whose only business use of a truck is to make deliveries to customers on an established route may satisfy the adequate record requirement by recording the total number miles driven during the taxable year, the length of the delivery route once, and the date of each trip at or near the time of the trips. Alternatively, the taxpayer may establish the date of each trip with a receipt, record of delivery, or other documentary evidence.

1.274-5T(c)(2)(ii)(C)(2) Written Record.

Generally, an adequate record must be written. However, a record of the business use of listed property, such as a computer or automobile, prepared in a computer memory device with the aid of a logging program will constitute an adequate record.

Date

The date of the business use can be established by methods other than a logbook or daily diary. The corroborative/circumstantial documentation is not defined in the code, but is written into the CFR as a reliable method of substantiation. The Code provides for the use of other and related documents to establish the date element.   [please read and understand §1.274-5T(c)(2)(C) and the following:

 

§1.274-5T(c)(2)(ii)(B) Substantiation Of Business Purpose.

In order to constitute an adequate record of business purpose within the meaning of section 274(d) and this paragraph (c)(2), a written statement of business purpose generally is required. However, the degree of substantiation necessary to establish business purpose will vary depending upon the facts and circumstances of each case. Where the business purpose is evident from the surrounding facts and circumstances, a written explanation of such business purpose will not be required. For example, in the case of a salesman calling on customers on an established sales route, a written explanation of the business purpose of such travel ordinarily will not be required. Similarly, in the case of a business meal described in section 274(e)(1), if the business purpose of such meal is evident from the business relationship to the taxpayer of the persons entertained and other surrounding circumstances, a written explanation of such business purpose will not be required.

Business Purpose

The taxpayer is provided a means of substantiating the business purpose that is flexible. In fact, the substantiation is not a narrowly defined requirement, but a flexible definition of substantiation written in the Code of Federal Regulations.  Please read and understand §1.274-5T(e)(2)(ii)(B)

The taxpayer’s statements that the use was business purpose, and related documentation is all that is required. No other documentation, written or otherwise, is necessary.