September 12, 2020 - Douglas Myser

Theron Johnson v Commissioner. In our ongoing coverage of Tax Court cases, this case addresses a long standing issue--substantiating business travel expenses. If you own a business, deductions can be taken for the ordinary and necessary expenses relating to the business activities, including certain travel expenses. However, to qualify for any deductions, strict recordkeeping requirements are spelled out in the tax regulations. Notably, if a taxpayer uses a vehicle for business purposes, they must substantiate by  adequate records, or by sufficient evidence corroborating their own statement, the following: The amount of the expense: The mileage for each business use of the vehicle, as well as the total mileage for all purposes during the tax year in question: The time and place of the travel or use; and The business purpose of the expense. The regulations generally require taxpayers to keep an account book, log or similar record and documentary evidence to establish each element for each expenditure. Theron Johnson v Commissioner.

In the new case, the taxpayer who operated a farm and lived on a ranch in Colorado, claimed business travel expenses for an automobile and pick up truck, including a Section 179 deduction for the truck. He submitted as his main evidence a Microsoft Outlook calendar collecting his travel during the periods in issue, supplemented by his testimony. The taxpayer used the calendar for all appointments and events, including those relating to his work for the farm, another business he owned and his persona travel activities. Many of the entries on his calendar noted only that he traveled to and or form the ranch. Significantly, they did not list the purpose of the travel.

Accordingly, absent the vital information, the Tax Court said it could not determine which of the trips served a legitimate business purpose. it could not determine if the taxpayer's business use of the truck, exceeded 50% of its total use, as required by Section 179.

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