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'Salesperson in training' learns about deducting travel expenses

September 26, 2008

A Brooklyn, New York man gave the insurance game a try, signing on as a "salesperson in training" for New York Life. The insurance company goes in for training by doing, as they only paid the man commissions on policies he sold -- $18,706 in 2004.

Based on his tax returns, training was even less lucrative than that. He claimed $15,500 in car and travel deductions related to the New York Life gig.

The IRS disallowed all of the deductions on the grounds that our taxpayer failed to properly substantiate his deductions. The taxpayer had an explanation:

Petitioner stored his receipts in a binder in his car. In November 2005 the car was stolen. Petitioner notified the police, and 2 or 3 weeks later the police recovered the vehicle; however, the business receipts were gone. Consequently, petitioner was not able to provide receipts to respondent or the Court.

That's typical. Car thieves take the car and they destroy your tax records. Unfortunately, the tax law doesn't let you take travel and entertainment deductions without some documentation:

Section 274 requires stricter substantiation for travel, meals, entertainment, and listed property such as a passenger automobile. Thus, all three of the unreimbursed business expenses that petitioner deducted are subject to section 274 substantiation requirements. Section 274(d) requires taxpayers to provide adequate records or sufficient other evidence establishing the amount, time, place, and business purpose of the expense to corroborate the taxpayers' statements. Even if such an expense would otherwise be deductible, section 274 may still disallow a deduction if the taxpayer does not have sufficient substantiation.

The Tax Court held for the IRS.

The Moral: When it comes to travel costs, no substantiation = no deduction.

Cite: Niyitegyeka, T.C. Summary Opinion 2008-129

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