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Business Use Of Car - Helping To Defend Against An Internal Revenue Service Attack
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Purpose
IntroductionEach person claiming a tax deduction is required to prove the deductions are valid. If the tax return is examined, the deduction must be proven. The Internal Revenue Service examining agent will use the Internal Revenue Service guidelines for judging whether the deduction should be allowed or disallowed. The following are a summary of the Internal Revenue Service guidelines. The Internal Revenue Service rules change quite frequently. At this time, the taxpayer is allowed to take a sample of the business use, as long as the taxpayer can prove the sample is typical for the entire tax year. Documents such as appointment calendars, invoicing, delivery tickets and audio tapes used to record the mileage diary are items that offer assistance in the recordkeeping.
Who This Applies to
Who
When to Perform
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Warnings & Special Circumstances
Why This Is Important
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General Benefits 7 Objectives
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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
Law (commentary and citation)
Regs (commentary and citation)
Cases (commentary and citation)
§§§ Law §§§
§274(d)
§§§ Regs §§§
§§§ Cases §§§
This is about Activity Based Taxplanning - maximizing deductions, minimizing cash outlay and maximizing the amount of cash retained and the net worth.
Tax is a subject that many view in order to cut costs. Taxes are a cost just as any other cost. It happens this cost is somewhat intangible and is defined by legislation without a tangible item to view and control. The money is spent and the control of the expenditure is more appropriately administered by someone trained in the law.
This is about Activity Based Costing - methods to cut costs, management accounting, management information systems, decision support systems - in general about being a manager.
Entrance Interview
Exit Interview
From Banking Records
From Customer Records
From Signed Documents
From Your Other Business, or Financial Records
From Corporation or Organization Records (meetings, etc.)
What to do:
Assistance - What to do
Forms - Checklists - Etc.
Financial Statement Presentation
Notes to Financial Statements
How to Make Entries
What Kind of Records to Keep
Bookkeeping Methods - Cash, Accrual and Other
How the Business Entity Affects the Recording
Sole Proprietor
Corporation - C & S
Partnerships - General, Limited, Limited Liability Company, Registered Limited Liability Partnership or Company
Trusts
Tax Exempt
Compliance Checklist
Action Checklist
Alerts & Dangers - Risks
Asset Protection
Your Defense
If you claim more tax deductions than the Internal Revenue Service expects the average person to claim, prepare yourself for an audit of your tax return. If the mileage you claim computes to a very large deduction, then you must anticipate the Internal Revenue Service will demand that you prove the deduction is valid. You may have to prove the validity before the irs issues the refund. You may receive a refund or the return may be processed as you filed it. Then the Internal Revenue Service will request proof up to three years after the return is filed. the Internal Revenue Service will then not only charge you the tax, it will add penalties and interest. you can expect the interest and the penalties to be very large. Expect it to double the tax savings.
If the irs proves that you knew or should have known the deductions were not documented, then expect more penalties and perhaps criminal penalties.
A taxpayer must have evidence for each of the following five elements to defend against the Internal Revenue Service attack on an expense relating to the tax deduction:
l
the cost of the listed property and other items such as repairs and maintenance;l
the dates of use;l
the name of the user;l
for a vehicle, the number of miles driven, or amount of time the property, other than property constituting a means of transportation, was used; andl
the business purpose of the use of the listed property.1313
Temp Reg §1.274-5T(b)(6).The method for defending the business use of car or other business property is generally the same as that for substantiating travel and entertainment expenses, although alternative methods are also available in certain circumstances. In general, a taxpayer must substantiate each element of an expenditure for the use of listed property by adequate records or by sufficient evidence corroborating his own statement.
14 An adequate record substantiating the business/investment use of listed property must contain sufficient information as to each element of every business/investment use. However, the level of detail required may vary, depending on 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 records requirement by recording the total number of miles driven during the tax year, the length of the delivery route, and the date of each trip. The date of each trip must be recorded at or near the time of the trip. Alternatively, the taxpayer may establish the date of each trip with a receipt, record of delivery, or other documentary evidence.1514
Temp Reg §1.274-5T(c)(1).
15 Temp Reg §1.274-5T(c)(2)(ii)(C)(1).
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 or a logging program constitutes an adequate record.
16 For further discussion of what constitutes adequate records and sufficient corroborating evidence.16
Temp Reg §1.274-5T(c)(2)(ii)(C)(2).Proof necessary to substantiate listed property deductions normally consists of a combination of account books, diaries, logs, or similar records, and documentary evidence such as receipts and paid bills. For example, substantiation of the amount of the expenditure for listed property generally consists of receipts or paid bills showing the date and the amount of the purchase. The proof relating to the actual use of that listed property (that is, date, name of use, time, and business purpose) normally consists of an account book, diary, or similar log.
17 A sampling method may be available for a taxpayer who maintains representative adequate records for a portion of the year. See §G:8.69.17
See Temp Reg §1.274-5T(c).Travel and entertainment expenses for listed property must be proved without resort to the
Cohan approximation rule.1818
Temp Reg §1.274-5T(a)(4); see Cohan v Commr, 39 F2d 540 (2d Cir 1930), 2 USTC ¶489.An employer substantiates its business/investment use of listed property provided by the employer to the employee by showing either of the following:
19(1) that based on evidence that satisfies the substantiation requirements or statements submitted by employees that summarize such evidence, all or a portion of the use of the listed property is by employees in the employer's trade or business, and the employer included an appropriate amount in the income of any employee who used the property for personal purposes; or
(2) for a vehicle, the employer treats all use by employees as personal use and includes an appropriate amount in the employee's income.
19
Temp Reg §1.274-5T(e)(2).For purposes of substantiating the business/investment use of listed property provided to an employee, the employer may rely on adequate records maintained by the employee or on the employee's own statement, if corroborated by other sufficient evidence, unless the employer knows or has reason to know that the statement, records, or other evidence are not accurate. The employer must retain a copy of the adequate records maintained by the employee or the other sufficient evidence, if available. Alternatively, the employer may rely on a statement submitted by the employee that provides sufficient information to allow the employer to determine the business/investment use of the property, unless the employer knows or has reason to know that the statement is not based on adequate records or on the employee's own statement corroborated by other sufficient evidence. The employer must retain a copy of the employee's statement only. The employee must retain a copy of the adequate records or other evidence.
2020
Temp Reg §1.274-5T(e)(2)(ii).
car defense help
Bob Parrish
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