As business travel picks back up, a court ruling within the past 12 months brings to light the importance of maintaining records for travel-related tax deductions. The case involves a timberland owner who barely escaped IRS fines after his travel logs were stolen.
As Accounting Today summarizes, the taxpayer traveled every week to maintain and monitor commercial timber on more than 100 acres of land, with each round-trip totaling about 300 miles. Within one year, he had logged a total of 47 round trips. While the taxpayer maintained a log listing the days he visited and stayed on the properties, those logs and the other records were stolen when the building in which he kept them was vandalized.
The missing logs created a problem with the IRS.
“The IRS didn’t contest whether the travel expenses were ordinary or necessary business expenses or if they were incurred while the taxpayer was away from his tax home. Rather, they contend that the taxpayer has not adequately substantiated the expenditures,” Accounting Today Columnist Ken Barry wrote.
The Tax Court sided with the taxpayer because a regular pattern of travel was established. He always traveled to the same locations and usually at the same intervals and lengths of time. That pattern, coupled with his testimony about keeping a log was credible, saved him from penalties. He did, however, receive a slap on the wrist for claiming too much for meals and incidental expenses.
Although the taxpayer won (mostly), the case is a good reminder that the IRS is watching when it comes to travel deductions. Brush up on what the IRS considers deductible business travel expenses and how it defines adequate recordkeeping. As your travel patterns and places of work (home versus the office, for instance) may have changed this year, so might the rules as they pertain to your situation. And don’t forget to re-check per diem rates, which were updated for 2021 as of October 1. Have questions? Feel free to contact us.
