Vehicle Expenses, 100% Business Use, No Mileage Log Kept

[Thetaxrookie23]

First year client has been deducting the actual vehicle expenses and claims 100% business use. However, there is no mileage log kept. He says previous accountant told him that if he used the vehicle for 100% business use he didn't need to keep a log. Is this correct? Could someone point me to the IRS code that would say this. I've searched, allthough maybe I've not looked in the right place.

If he doesn't need to keep a log, how do I enter this information into the tax software when it requires that I enter mileage so it can figure the business use %?

Thanks in advance.

[Harvey Lucas]

Ask him for a milage estimate

Ask him to provide you with an estimate of his miles for the year.

If he has no idea, then ask him for his total fuel cost and his estimated mpg on the vehicle he uses. Use this info to get a rough estimate of the total miles. Have him write you a note saying that he uses the vehicle 100% for business. Ask him to also to state that he has another vehicle that he uses for personal use (if he does)...If he does not, explain that it is near impossible to have a vehicle that is 100% business if he does not have another vehicle for personal use.

Harvey Lucas

[joanmcq]

If the vehicle is a qualified nonpersonal use vehicle, you don't need to keep a log. You still need to determine how many miles were driven during the year. For example, I have a client that has a carpet cleaning buisness. His van has been modified in that it is a panel truck with the back filled with a cleaning machine. It is assumed to be 100% biz. If its a regular car or truck, nope, need a log.

[Thetaxrookie23]

A little more information

Here is a little bit of information I forgot in previous post. This is a truck that has not been modified, and there is another vehicle available for personal use.

Thanks for the replies.

[Bees Knees]

He says previous accountant told him that if he used the vehicle for 100% business use he didn't need to keep a log. Is this correct? Could someone point me to the IRS code that would say this. I've searched, allthough maybe I've not looked in the right place.

There is no code section that says you do not need to keep a mileage log.

There is also no code section that says you need to keep a mileage log.

Those things help or hurt you when you are audited and the auditor doesn't believe your story. If you are good at telling stories, the story itself could be used to support your mileage. Reg. Sec. 1.274-5A(c)(3)(i) says:

(3) Substantiation by other sufficient evidence--(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--
(A) By his own statement, whether written or oral, containing specific information in detail as to such element; and
(B) By other corrobative evidence sufficient to establish such element.

[snowbird]

Bees ...

Thanks for the reg's ... I don't have access to good research tools for regs... this essentially explains the relevance of Form 2106 lines 20 &21 where the instructions are silent.

20 Do you have evidence to support your deduction?
21 If “Yes,” is the evidence written?

[Thetaxrookie23]

Thanks for your help - just one more question

Thank you for your help. I have one more question on vehicle expenses that I need some clarification on. On this client's 2006 return, the only reference to the vehicle expense is the depreciation taken on form 4562 line 26 - property used more than 50% in qualified business use. There is nothing in section B information on use of vehicles. However, there is a deduction taken for car & truck expenses on schedule C line 9. Is it okay to deduct vehicle expenses without answering the questions on either form 4562 (provided one needs to be filled), or filling out part 4 of schedule C on information about the vehicle? Is this an incomplete return?

Thanks again for the help provided from all of you kind folks on this forum.

[Bees Knees]

You need to answer those questions, either on page 2 of the 4562 or page 2 of the Schedule C, even if business use is 100%. The exception would be if the vehicle is not listed property, such as qualified nonpersonal-use vehicles and those not subject to Section 280F (TTB page 10-6).

[anthony]

sort of

There is no code section that says you do not need to keep a mileage log.

There is also no code section that says you need to keep a mileage log.

Well, there's IRC 274(d)(4) and 26CFR 1.274-5T(6), which don't exactly say that you must keep a mileage log, but they come pretty close.

This question is therefore a good one, and I'd like to hear from someone with experience on this particular issue, because I'm sure it comes up a lot.

[Nashville]

Yes it does

I'm sure it comes up a lot.

Anthony the question does come up a lot. In fact, customers push us harder to take deductions on vehicles than almost anything else. The pressure comes because many of them spend a fortune on a "honkin' big truck" (to quote one of our other members), and they want to find a way to get some of their money back.

The squeeze comes from the IRS too. They are sick and tired of subsidizing these "honkin' big trucks" when there is no realistic business benefit. One taxpayer went to an audit in Georgia with his gun rack mounted and a deer in the truck bed, claiming some ridiculous business usage for that very truck. Over the last 20 years they have been tightening the noose. Whereas they can't totally disallow a deduction just because there is no log, the burden of proof is on the taxpayer, and what better proof could there be than a log?

The only way to avoid the issue is to have a vehicle which, by its own nature and/or furnishing, is inappropriate for personal use. If the vehicle in question is a bucket truck getting 4 m.p.g., you've got a slam dunk on the issue.

At any rate, most of us have clients who absolutely insist that you deduct unsupportable percentages of their vehicles. If you tell him no, then it's "well my brother-in-law in Dallas says his accountant told him he could blah blah blah..."

My most effective way to deal with these bozos is to say, "Sure. But I'm intending to answer the written record question 'No' and file your return that way if you can't provide some written substantiation." That puts the monkey back on them. Sometimes I'll sit with a client for an extra two hours of billable time reconstructing a written record and furnishing it to him with a countersignature. That way everyone wins.

[Gretel]

I hope the original question will some more attention since I had the same scenario coming up and with the new rules tried to find a good answer.

If a vehicle is used 100% for business (I have 100% actual biz use in mind) should the client keep a log?

By the way: Since vehicle are listed property I think the auditor would have any right to disallow all vehicle expenses even if it does not make any sense. Have I misinterpreted the rules?

[ED SMITH]

If he kept receipts for repairs and maintenance on the vehicle, the existing mileage will be shown on the receipts. For instance an oil change in Jan might show 50,000 miles and a tune up in Oct might show 70,000 miles. This establishes his mileage at 2000 mi/mo. which can be extrapolated to 12,000 miles for the year.