Expense Substantiation

[ATSMAN]

I had a meeting with a potential new client referred by an existing client. This taxpayer is a independent trucker (owns his own rig), has been in business for 6 years on and off (worked as a delivery driver 1 or 2 years). He had a nasty breakup with his girlfriend who also took care of books and taxes. She destroyed all the records for 2013.

All this guy has are 6 1099s, and the log book and some paperwork that was in his rig. He can get proof of tax and excise payments from various agencies and most of his Fuel was on a charge card so that can be recovered. He has a log book with mileage, stops etc.

He does not have receipts for cash payments of food and lodging (long distance driver), emergency repairs and some misc expenses. He is estimating all that to be around $5,000 to $8000.

I can order transcripts of his prior 3 years and try to use those expenses to see if we can justify by using some averages etc. I have not signed an engagement yet without knowing what I may be facing down the road.

Question:

1) If this fellow is audited (good chance if the now Ex girlfriend reports to IRS), what are the chances of using prior expense average for justification and substantiation of cash expenses.

2) Would it be advisable to forget about cash expenses. I know he does not want to do that but the hassles may not be worth it for me?

[S T]

Definitely the Log Book is an invaluable source of information ----

Not for sure, but could you review the t/p log books, arrive at a Per Diem rate for meals-lodging , (of course you have the the 4 periods in a day to contend with) seems like you might be able to without receipts, might be subject to reduction for meals.

A thought

Sandy

[joanmcq]

Per diem for meals is the way to go. Half allowed on the day he leaves & again on the day he comes back. Subject to the DOT limits.

His logbook will record what days he was on the road.

[ATSMAN]

Is there any case law?

Thanks for the response. I was leaning towards DOT per diem rates as well. I am more concerned about estimating other cash expenses from prior years.

Anyone know of any case or cites where this was allowed. I would feel more comfortable doing it if there was some precedent.

Fortunately I told him that if I do this return it will have to go on extension because we have to get all the other documentation from bank, credit card company, states etc.

[mastertaxguy]

Try the tax book page 8-1

Thanks for the response. I was leaning towards DOT per diem rates as well. I am more concerned about estimating other cash expenses from prior years.

Anyone know of any case or cites where this was allowed. I would feel more comfortable doing it if there was some precedent.

Fortunately I told him that if I do this return it will have to go on extension because we have to get all the other documentation from bank, credit card company, states etc.

See TTB 8-1, chart on truckers/transportation workers, and also TTB 8-9. Also IRS Pub 463, page 6 (middle column, near bottom), and page 12 (left column, starting at bottom).

A plethera of case law can be found on the Tax Court Cite (www.ustaxcourt.gov), and probably other research cites inlcuding TTB's web deluxe plus or whatever they call it.

[mastertaxguy]

You wanted a cite...

Check out TC Sum 2010-151, Madson, particulary page 24, for an illuminating opinion on the permissable use of per diem rates for transportation workers subject to hours of work limitatios. The opinion cites some other cases on this topic which may be of interest.

[arlo]

Trucker lodging

TB 8.8 says actual receipts are required to substantiate a deduction for lodging.

[AJsTax]

True

TB 8.8 says actual receipts are required to substantiate a deduction for lodging.

A sch C filer can only claim actual expenses for lodging. But the per diem for meals and incidentals is huge for OTR truck drivers. The rate per day is higher and the % is 80% for them. All my truck drivers use per diem verified by their log book. Very few have lodging unless the truck is broke down and in the shop. If he has fuel expenses from his credit card and broker statement, he has most of his expenses. If he had a major repair that shop will have record and hopefully he did not pay cash for any large expenses.

[ATSMAN]

I called the fellow back today and told him to get started getting records from credit card company, bank etc. and start recreating documentation to back up his expenses.

Told him that the safe bet his to use DOT per diem rates for food and lodging as long as his log book can support overnight travel and stay. This fellow likes to eat well (I can tell) so per diem rates may be short but better than nothing.

The only open issue is cash payments for repairs and misc expenses. A lot of that is for truck wash, routine maintenance items like oil, fluids etc. He estimates that they were no more than $100 per item but a lot of them as it adds up. There was one big job for $2800 where the mechanic demanded cash to fix his truck. I told him to get a copy of the paid invoice from the mechanic and he laughed. These are mechanics who also moonlight on the side and it is all cash business.