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YOU BLOCKHEAD! YOU DIDN'T SUBSTANTIATE YOUR DEDUCTIONS!

June 17, 2005

Perhaps somewhere a Bartholemew Simpson is in his mid-twenties, mulling whether to change the name his parents gave him before anybody heard of Bart, Homer and Mr. Burns.

Charles Brown apparently made his peace with this issue long ago. The Tax Court says Mr. Brown has been an attorney for 30 years, which makes him about 55 years old. Charles Schultz had just invented the Charlie Brown character when Charles was born, but it was not yet a cultural icon.

Unfortunately, even a cultural icon has to substantiate his deductions.

Mr. Brown worked full time for a company called Mecca, but he also had a law practice on the side. His 1998 law practice schedule C showed $1,800 of income and $17,394 in expenses. An audit ensued.

AUTO EXPENSES: NO SUBSTANTIATION, NO DEDUCTION

Mr. Brown "reconstructed" a log book to support his $2,496 vehicle expense deduction. Based on the log book, the IRS allowed $494 of the deduction and nixed the rest. The Tax Court upheld the disallowance:

To substantiate the adequate records requirement for a passenger automobile, “a taxpayer shall maintain an account book, diary, log, statement of expense, trip sheets, or similar record * * * which, in combination, are sufficient to establish each element of an expenditure”. Sec. 1.274-5T(c)(2)(i), Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985).3 Based on a reconstructed log provided by Mr. Brown, respondent allowed a total of 7,562 business miles on a leased 1997 Acura, and accordingly allowed a deduction for a percentage of the vehicle’s lease payment, insurance, and gasoline expenses. Mr. Brown did not provide any additional account book, diary, log, statement of expense, trip sheets, or similar record for the remaining amounts of his vehicle expenses at trial. Mr. Brown testified to these expenses with estimations.

We are generally permitted to approximate the amount of an
expense if it is deductible but unsubstantiated, bearing heavily
against the taxpayer whose inexactitude is of his or her own
making.

Similar substiation failures cost Mr. Brown other home office, business and charitable contribution deductions.

THE MORAL: get a log and track those auto deductions, or you may end up feeling like a real blockhead.

Cite: Brown v. Commissioner, T.C. Summary Opinion 2005-85.

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