What is our liability?

[Questionguy101]

I have this client who is a licensed construction subcontractor. Obviously he has to drive his car around to do his works. But he did not keep any mileage log.

My question is: as the tax practitioner, to what extent are we responsible for the substantiation issue? A few different scenarios below:

(1) If the profession of your client obviously necessitates him to use his car for his works, but he is also honest enough to tell you that he did not keep the mileage log, are we supposed to claim the car expenses for him?

(2) If he said he would reconstruct the mileage log, are we allowed to go ahead to claim the car expenses for him based on his words? Or should we require him to show us the log first?

(3) I guess my question really is, as the tax practitioners, are we only responsible for explaining the substantiation requirements to the client (and then leave it up to him to make sure to fulfill the requirements)? Or are we also responsible for making sure that the client does have the mileage log before we can claim the car expenses for him?

[taxea]

Because this is such a big issue with the IRS, I require the client to provide me with a copy of the log which I keep in my office file in case the IRS wants to see it. Same with donations. No receipts, no deduction.

[Jiggers]

Because this is such a big issue with the IRS, I require the client to provide me with a copy of the log which I keep in my office file in case the IRS wants to see it. Same with donations. No receipts, no deduction.

I have my clients sign a statement that shows beginning of year and end of year odometer readings, total mileage and business mileage.

It says that they can substantiate the business mileage.

Two separate auditors saw that, never asked for substantiation.

[ttbtaxes]

I explain the rules to every client and each year they must submit to me, in writing, the total miles for the year along with the total business miles. Each year, before I will file their return, they must also sign a letter of representation (I prepare it for their signature) that I explained the rules about Section 274 regarding auto, meals, and entertainment and the requirement to maintain written, contemporaneous records.

[Gretel]

Ditto, I get a signed statement with mileage numbers and my Engagement Letter explains the substantiation rules. If someone does not keep a log, I check the "No" box for written proof. Never heard any of it for over 10 years.

[Nashville]

Italicized Response

I have this client who is a licensed construction subcontractor. Obviously he has to drive his car around to do his works. But he did not keep any mileage log.

My question is: as the tax practitioner, to what extent are we responsible for the substantiation issue? A few different scenarios below:

(1) If the profession of your client obviously necessitates him to use his car for his works, but he is also honest enough to tell you that he did not keep the mileage log, are we supposed to claim the car expenses for him?You may be giving him more credit than is warranted. If he tells you he has a log then you might ask to see it. We are told not to claim car expenses without some sort of log

(2) If he said he would reconstruct the mileage log, are we allowed to go ahead to claim the car expenses for him based on his words? Or should we require him to show us the log first?Should not claim a deduction based on a future expectation that the information may become available. In many cases I assist (or even direct) such a reconstruction of a log and charge my hourly rate in doing so. I don't stop until I have enough statistical information to support a deduction. I don't need a "perfect" log such as getting the beginning and ending odometer every time the car is used.

(3) I guess my question really is, as the tax practitioners, are we only responsible for explaining the substantiation requirements to the client (and then leave it up to him to make sure to fulfill the requirements)? Or are we also responsible for making sure that the client does have the mileage log before we can claim the car expenses for him?I think we have to have confidence that the client either has such a log or we are pro-active in bringing this about.

[TAXNJ]

Good response

I have this client who is a licensed construction subcontractor. Obviously he has to drive his car around to do his works. But he did not keep any mileage log.

My question is: as the tax practitioner, to what extent are we responsible for the substantiation issue? A few different scenarios below:

(1) If the profession of your client obviously necessitates him to use his car for his works, but he is also honest enough to tell you that he did not keep the mileage log, are we supposed to claim the car expenses for him?You may be giving him more credit than is warranted. If he tells you he has a log then you might ask to see it. We are told not to claim car expenses without some sort of log

(2) If he said he would reconstruct the mileage log, are we allowed to go ahead to claim the car expenses for him based on his words? Or should we require him to show us the log first?Should not claim a deduction based on a future expectation that the information may become available. In many cases I assist (or even direct) such a reconstruction of a log and charge my hourly rate in doing so. I don't stop until I have enough statistical information to support a deduction. I don't need a "perfect" log such as getting the beginning and ending odometer every time the car is used.

(3) I guess my question really is, as the tax practitioners, are we only responsible for explaining the substantiation requirements to the client (and then leave it up to him to make sure to fulfill the requirements)? Or are we also responsible for making sure that the client does have the mileage log before we can claim the car expenses for him?I think we have to have confidence that the client either has such a log or we are pro-active in bringing this about.

When you say in #1 "We are told not to claim car expenses without some sort of log", if you can identify, Who told ...., then it solves why it must be done before a preparer can note the mileage on the return.

[taxea]

When you say in #1 "We are told not to claim car expenses without some sort of log", if you can identify, Who told ...., then it solves why it must be done before a preparer can note the mileage on the return.

research the IRS website. I recall them addressing this issue. I will not include the expense without a copy of the log or the TP filling out the information on my worksheet. Both requirements for donations and mileage logs are included on the worksheets my clients fill out. If they include it on the worksheet after I know I have advised them of the requirements, I will use the expenses.

As for reconstructing a mileage log, I believe the IRS has addressed this too. I tell my clients to include the mileage in their appt calendar as that is the easiest way to keep a mileage log. Their client name/address and the date/s the service was provided are usually there.

[TAXNJ]

Agree

Because this is such a big issue with the IRS, I require the client to provide me with a copy of the log which I keep in my office file in case the IRS wants to see it. Same with donations. No receipts, no deduction.

Yes, agree with all reply posters.

Think Original Poster issue was on responsibility of both parties and should be noted that
"The taxpayer is ultimately responsible" (see below)

From IRS instructions:
What choices do you have if you are not satisfied with the records?

As a preparer you must make a decision whether you are comfortable that the information presented by your client is substantially correct.

If you are not satisfied with the taxpayer's records, you may:

Request the taxpayer attempt to reconstruct his records on his own.
Assist him with reconstructing his records.
Suggest filing without an EITC claim.
Refuse to prepare the Schedule C return altogether.
You have a professional responsibility to prepare returns that are accurate. The taxpayer is ultimately responsible for the figures computed through record reconstruction, and you should inform the taxpayer of possible repercussions of filing a false EITC claim whether with or without your assistance. However, as a tax preparer you must exercise due diligence and apply reasonableness as you may be subject to penalties and additional consequences.