As the year came to a close we asked the good folks at Summit Accounting and Accounting and Financial Women’s Alliance for their thoughts on 2014. Their message was simple: make sure you have a proper mileage log prior to filing your taxes. It might seem obvious but many folks guesstimate which leads one to think the mileage log can be reconstructed from the guesstimation at the time of an audit. But that’s not the case!
Over the past several years, the IRS has continued to refine audit points to find taxpayers that are not compliant with the Internal Revenue Code (”IRC”). Record keeping is becoming paramount in defending the values reported as deductions to the Internal Revenue Service (“IRS”). In 2012, there were several cases that went to Federal Tax Court addressing mileage logs used to claim the mileage deduction. Most notable is the Moore case (Moore, T.C. Summ Op 2012-16). The taxpayers had mileage logs, but those mileage logs did not meet the IRC requirements and thus a component of the disallowed expenses was the mileage reported. In 2013, the Tax Court addressed mileage logs generated after the return was filed (Longino T.C. Memo 2013-80 and Daniel-Berhe T.C. Summ Op 2013-33), in each case the mileage deduction was disallowed or substantially reduced.
Additionally, there has been an IRS audit memorandum in regard to the preparation of mileage logs after the federal tax compliance has been filed. In other words, if the IRS auditor thinks you generated the mileage log after you filed the return, they may disallow the mileage deductions. If your return was prepared by a third party, the IRS may subpoena from the third party a copy of the documentation you provided for the mileage deduction.
To ensure that your mileage deduction meets the requirements of the IRC, our accountants are asking all clients to provide a mileage log to
substantiate their mileage deductions for 2013. While this sounds ominous, it doesn’t need to be to administratively difficult. There are several methods for tracking mileage, from a piece of paper that states the date of the mileage, the business purpose and the number of miles to more complex electronic systems. Since most business mileage goes through appointments on your calendar, using an electronic interface to your calendar makes the mileage log easier to compile. Of course we recommend using MileLogr to easily create your mileage log, but regardless of the method or program you use to track your mileage, please be informed that without a mileage log that meets the IRS requirements, your mileage deduction is at risk.
Even though few return have had inquires from auditor, it’s much safer to take the position that every return will be audited. Having the documentation readily available to respond to the IRS is critical to making a challenge of your deductions successful. Therefore, plan ahead and supply your accountant with a copy of your mileage logs for the preparation of your 2013 federal tax compliance.