Notice 2009-46 , I.R.B. 2009-23, 1068, June 8, 2009.




Business expenses: Gross income: Fringe benefits: Substantiation: Cell phones. --





PURPOSE

This notice requests comments from the public regarding several proposals to simplify the procedures under which employers substantiate an employee's business use of employer-provided cellular telephones or other similar telecommunications equipment (hereinafter collectively referred to as "cell phones"). This notice describes the proposals under consideration. The Internal Revenue Service (IRS) and Treasury Department are interested in considering other possible approaches. Therefore, this notice also requests suggestions for alternative approaches to simplify the procedures under which employers substantiate an employee's business use of employer-provided cell phones.

Any changes to the substantiation procedures applicable to employer-provided cell phones will not become effective until the IRS and Treasury Department consider public comments and suggestions received in response to this notice and publish guidance announcing any simplified substantiation procedures.



BACKGROUND



Employers

Section 162(a) of the Internal Revenue Code provides that a deduction is allowed for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. However, § 262(a) provides that, except as otherwise expressly provided, no deduction shall be allowed for personal, living, or family expenses.

Section 274(d)(4) provides that no deduction shall be allowed with respect to any listed property (as defined in § 280F(d)(4)), unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayer's own statement (A) the amount of such expense or other item, (B) the use of the property, (C) the business purpose of the expense or other item, and (D) the business relationship to the taxpayer of persons using the property. The Secretary may by regulations provide that some or all of the requirements of the preceding sentence shall not apply in the case of an expense that does not exceed an amount prescribed pursuant to such regulations.

Section 280F(d)(4)(A)(v) provides that "listed property" includes any cellular telephone (or other similar telecommunications equipment).

Section 1.274-5T(a) of the temporary Income Tax Regulations provides that no deduction or credit shall be allowed with respect to any listed property unless the taxpayer substantiates each element of the expenditure or use. Section 1.274-5T(b)(6) provides that the elements to be proved with respect to any listed property are:

(i) Amount --(A) The amount of each separate expenditure with respect to an item of listed property, such as the cost of acquisition, and (B) the amount of each business use based on the appropriate measure (that is, time) and the amount of total use of the listed property for the taxable period ( see § 1.274-5T(e)(2));

(ii) Time --The date of the expenditure or use with respect to the listed property; and

(iii) Business purpose --The business purpose for an expenditure or use with respect to any listed property.



Employees

Section 61(a)(1) provides that, except as otherwise provided, gross income includes compensation for services, including fees, commissions, fringe benefits, and similar items. Section 1.61-21(b)(1) of the Income Tax Regulations requires that an employee generally must include in gross income the amount by which the fair market value of a fringe benefit exceeds the sum of (i) the amount, if any, paid for the benefit by or on behalf of the employee, and (ii) the amount, if any, specifically excluded from gross income by some other section of the Code. The fair market value of a fringe benefit is the amount that an individual would have to pay for the particular fringe benefit in an arm's length transaction. Section 1.61-21(b)(2). The cost incurred by an employer is not determinative of the fair market value of a fringe benefit. Id.

Section 132(a)(3) provides that gross income does not include any fringe benefit that qualifies as a working condition fringe. Section 132(d) provides that "working condition fringe" means any property or services provided to an employee of the employer to the extent that, if the employee paid for such property or services, such payment would be allowable as a deduction under § 162 or § 167.

Section 1.132-5(a)(1)(ii) provides that if, under § 274 or any other section of the Code, certain substantiation requirements must be met in order for a deduction under § 162 or § 167 to be allowable, then those substantiation requirements apply in determining whether a property or service is excludable as a working condition fringe. See also § 1.132-5(c)(1). The substantiation requirements of § 274(d) are satisfied by adequate records or sufficient evidence corroborating the employee's own statement. Section 1.132-5(c)(2). Therefore, such records or evidence provided by the employee, and relied upon by the employer to the extent permitted by the regulations promulgated under § 274(d), will be sufficient to substantiate a working condition fringe exclusion. Id.



DISCUSSION

If an employer provides a cell phone to an employee, and the employer acquires and pays the costs of using the cell phone, the employee receives a fringe benefit. To the extent that the employee uses the employer's cell phone for business purposes, the fair market value of such usage qualifies as a working condition fringe benefit excludable from the employee's gross income and the cell phone expense is a deductible business expense for the employer, provided that the substantiation requirements of § 274(d) are met. However, to the extent the employee uses the employer's cell phone for personal purposes, the fair market value of such usage is includable in the employee's gross income. The employer's cost to provide the cell phone is not determinative of the fair market value of the benefit received by the employee.



PROPOSALS

The IRS and Treasury Department are considering the following proposals to simplify the § 274(d) substantiation requirements applicable to employee usage of employer-provided cell phones.



A. Simplified Substantiation Methods



General Requirements

As discussed in greater detail below, the IRS and Treasury Department are considering three alternative methods to simplify the substantiation requirements applicable to employee usage of employer-provided cell phones: a minimal personal use method, a safe harbor substantiation method, and a statistical sampling method (or a combination of the foregoing). Any simplified cell phone substantiation method will be optional; taxpayers may continue to comply with current § 274(d) substantiation requirements.

The IRS and Treasury Department contemplate that any taxpayer who wishes to use a simplified cell phone substantiation method will be required to implement a written policy that requires employees to carry and use the employer-provided cell phones in connection with the employer's trade or business and that prohibits personal use of employer-provided cell phones, except for minimal personal use, similar to the requirements currently applicable to employer-provided automobiles in § 1.274-6T. In addition, the IRS and Treasury Department anticipate requiring that the employer must reasonably believe that the cell phone is not used for personal purposes except for minimal personal use.



1. Minimal Personal Use Method

The IRS and Treasury Department are considering two proposals that would allow an employer to deem all of an employee's usage of an employer-provided cell phone as business usage. Under the first proposal, the entire amount of an employee's use of an employer-provided cell phone would be deemed to be for business purposes if the employee can account to his or her employer with sufficient records to establish that the employee maintains and uses a personal (non-employer-provided) cell phone for personal purposes during the employee's work hours.

Alternatively, the second proposal would define a specified amount or type of "minimal" personal use that would be disregarded in determining the amount of personal use of an employer-provided cell phone. For example, "minimal" could be defined by reference to a particular number of minutes of use or for certain personal purposes.



2. Safe Harbor Substantiation Method

The IRS and Treasury Department are considering a safe harbor method under which an employer would treat a certain percentage of each employee's use of an employer-provided cell phone as business usage. The remaining percentage of use would be deemed to be for personal purposes. For this proposal, the IRS and Treasury Department propose a business use percentage of 75 percent.



3. Statistical Sampling Method

The IRS and Treasury Department are considering a proposal that would allow employers to use statistical sampling techniques to measure an employee's personal use of an employer-provided cell phone. In general, an employer could use an approved statistical sampling methodology similar to that provided in Rev. Proc. 2004-29, 2004-1 C.B. 918, to determine the percentage of personal use of employer-provided cell phones. The employer would multiply that percentage times the value of each employee's total usage to determine the value of personal usage. The remaining portion of the employee's usage would be deemed to be for business purposes.



B. Simplified Fair Market Value Determination

To the extent that an employee's use of an employer-provided cell phone does not qualify as a working condition fringe benefit (because the employer does not satisfy § 274(d) or the cell phone is used partially for personal purposes), the fair market value of an employee's use of the employer-provided cell phone is a taxable fringe benefit that is includable in the employee's gross income. An employer's cost to provide the cell phone is not determinative of the fair market value of an employee's fringe benefit. The IRS and Treasury Department are interested in understanding the methods employers currently use to arrive at the fair market value to an employee of an employer-provided cell phone. The IRS and Treasury Department are considering whether a simplified valuation method would be helpful and appropriate to determine such fair market value.



REQUEST FOR COMMENTS

The IRS and Treasury Department request public comments on the proposals contained in this notice and suggestions for other approaches for modifying and simplifying the substantiation requirements applicable to employee usage of employer-provided cell phones. The IRS and Treasury Department are particularly interested in any comments regarding:
 The specific provisions that should be required to be included in an employer's written policy prohibiting personal use of employer-provided cell phones;

 The types of employee records sufficient to establish that the employee maintains and uses a personal (nonemployer-provided) cell phone for purposes of the first proposed minimum personal use method contained in this notice;

 How to define a specified amount or type of "minimal" personal use ( e.g., a maximum number of minutes of use or a list of acceptable personal uses) that should be disregarded in determining the amount of personal use of an employer-provided cell phone for purposes of the second proposed minimum personal use method contained in this notice.

 The business use percentage that should be applied in the proposed safe harbor substantiation method contained in this notice and the data and rationale upon which it is based;

 The methods currently used by employers to determine the fair market value of an employee's use of an employer-provided cell phone; and

 Whether a simplified method of determining the fair market value of an employee's use of an employer-provided cell phone would be appropriate, and, if so, suggested simplified methodologies for determining such fair market value.

Comments must be submitted in writing on or before September 4, 2009, and should include a reference to Notice 2009-46. Submissions should be sent to:
Internal Revenue Service

Attn: CC:PA:LPD:PR

( Notice 2009-46), Room 5203

P.O. Box 7604

Ben Franklin Station

Washington, DC 20044

Submissions also may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR ( Notice 2009-46), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, DC. Alternatively, comments may be submitted electronically directly to the IRS via the following e-mail address: Notice.comments@irscounsel.treas.gov. Please include "Notice 2009-46" in the subject line of any electronic communication. All comments will be available for public inspection and copying.



DRAFTING INFORMATION

The principal author of this notice is Jeffrey T. Rodrick of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this notice, contact Mr. Rodrick at (202) 622-4930 (not a toll-free call).

Substantiation Requirements and Per Diem Rates: Substantiation of Individual Expenses for Listed Property: Elements that must be substantiated for deduction of automobile and computer equipment expenses

In general, expenses related to listed property must be substantiated. Listed property includes passenger automobiles and other property used for transportation, property used for entertainment, any computer and peripheral equipment not used exclusively in a business, and cellular telephones ( Code Sec. 280F(d)(4)).

Expenses relating to listed property must be substantiated by providing an adequate record of the following elements of expenses:
(1) Amount --both the amount of each separate expenditure made with respect to the property and the amount of business investment use must be proved ( Temporary Reg. §1.274-5T(b)(6)).

(2) Time --dates of expenditures made with respect to the property must be proved ( Temporary Reg. §1.274-5T(b)(6)(ii)).

(3) Business or investment purposes --the business reason for the use of listed property and for expenditures made with respect to listed property must be substantiated ( Temporary Reg. §1.274-5T(b)(6)(iii)).

(4) Business/investment use --a taxpayer must provide sufficient information as to each element of every business or investment use of listed property. However, if the facts and circumstances indicate that the listed property has a repetitive business use, the details of each use need not be repeated. For example, if a truck that is used both for personal and business purposes travels on an established business route, the information regarding the route may be recorded once. Details regarding the date of each repetitive use, however, must be stated ( Temporary Reg. §1.274-5T(c)(2)(ii)(C)).

The amount of business use may be expressed in terms of mileage if the property is used for transportation ( Temporary Reg. §1.274-5T(b)(6)(i)). Regarding vehicles used in farm operations, the business use may be deemed to be 75% plus the percentage attributable to the amount included in any employee's gross income ( Temporary Reg. §1.274-6T(b)).

The adequate record requirements of Temporary Reg. §1.274-5T(c)(2) apply to listed property expenses. Thus, a taxpayer must prove each element by written documentary evidence and taxpayer-maintained records. Written documentary evidence, such as receipts or paid bills, is required for amounts of $75 or more (see ¶14,417.023). However, a record of the business use of certain listed property, such as computers and vehicles, for example, may be provided by logging devices rather than by written evidence. Under certain circumstances, a taxpayer may prove elements by corroborative evidence and his own statement, or by other methods such as reconstruction (see ¶14,417.023).

Substantiation by sampling. If a taxpayer maintains an adequate record for portions of the tax year, and the taxpayer proves by other evidence that the adequate record is representative of the entire year, the business use or investment use of listed property during all or a portion of the year will be substantiated. The sampling method is not available to substantiate the business or investment use of vehicles that are used by more than one employee during the year ( Temporary Reg. §1.274-5T(c)(3)(ii)).

Substantiation Requirements and Per Diem Rates: Substantiation of Individual Expenses for Listed Property: Elements that must be substantiated for deduction of automobile and computer equipment expenses

In general, expenses related to listed property must be substantiated. Listed property includes passenger automobiles and other property used for transportation, property used for entertainment, any computer and peripheral equipment not used exclusively in a business, and cellular telephones ( Code Sec. 280F(d)(4)).

Expenses relating to listed property must be substantiated by providing an adequate record of the following elements of expenses:
(1) Amount --both the amount of each separate expenditure made with respect to the property and the amount of business investment use must be proved ( Temporary Reg. §1.274-5T(b)(6)).

(2) Time --dates of expenditures made with respect to the property must be proved ( Temporary Reg. §1.274-5T(b)(6)(ii)).

(3) Business or investment purposes --the business reason for the use of listed property and for expenditures made with respect to listed property must be substantiated ( Temporary Reg. §1.274-5T(b)(6)(iii)).

(4) Business/investment use --a taxpayer must provide sufficient information as to each element of every business or investment use of listed property. However, if the facts and circumstances indicate that the listed property has a repetitive business use, the details of each use need not be repeated. For example, if a truck that is used both for personal and business purposes travels on an established business route, the information regarding the route may be recorded once. Details regarding the date of each repetitive use, however, must be stated ( Temporary Reg. §1.274-5T(c)(2)(ii)(C)).

The amount of business use may be expressed in terms of mileage if the property is used for transportation ( Temporary Reg. §1.274-5T(b)(6)(i)). Regarding vehicles used in farm operations, the business use may be deemed to be 75% plus the percentage attributable to the amount included in any employee's gross income ( Temporary Reg. §1.274-6T(b)).

The adequate record requirements of Temporary Reg. §1.274-5T(c)(2) apply to listed property expenses. Thus, a taxpayer must prove each element by written documentary evidence and taxpayer-maintained records. Written documentary evidence, such as receipts or paid bills, is required for amounts of $75 or more (see ¶14,417.023). However, a record of the business use of certain listed property, such as computers and vehicles, for example, may be provided by logging devices rather than by written evidence. Under certain circumstances, a taxpayer may prove elements by corroborative evidence and his own statement, or by other methods such as reconstruction (see ¶14,417.023).

Substantiation by sampling. If a taxpayer maintains an adequate record for portions of the tax year, and the taxpayer proves by other evidence that the adequate record is representative of the entire year, the business use or investment use of listed property during all or a portion of the year will be substantiated. The sampling method is not available to substantiate the business or investment use of vehicles that are used by more than one employee during the year ( Temporary Reg. §1.274-5T(c)(3)(ii)).

Adequate v. inadequate records. --Substantiation Requirements and Per Diem Rates: Evidence: Adequate v. inadequate records

A lawyer who entertains clients in his own residence must substantiate all the required elements the same as a person who entertains elsewhere. Nor was the Court persuaded by the taxpayer's contention that it would have been economically unfeasible for him to have kept detailed records due to the large number of people he entertained. His situation was similar to that of a large number of professionals and businessmen who find it advisable to entertain.

R. Steel, CA-2, 71-1 USTC ¶9164, 437 F2d 71.

Oral testimony and circumstantial evidence that corroborated written evidence and the taxpayer's own statement concerning the amount, time and place, business purpose and business relationship of expenditures for travel, meals and entertainment with current and prospective customers were sufficient to substantiate the expenditures.

C.F. Dowell, Jr., CA-5, 75-2 USTC ¶9819, 522 F2d 708. Cert. denied, 426 US 920, 96 SCt 2626.

Where neither a professional employer organization (PEO) nor its client properly limited the deduction for per diem payments in accordance with Code Sec. 274(n), the PEO (a subsidiary of the taxpayer, a truck driver leasing company) was responsible for the resulting tax deficiency. The court of appeals, reversing the Tax Court, held that the taxpayer proved that it was not subject to the Code Sec. 274(n) limitation of 50 percent of any expense for food or beverages. The taxpayer paid per diem expenses to the truck drivers and provided its trucking company clients with the expense substantiation information required by Code Sec. 274(d). The trial record included substantial documentary and testimonial evidence establishing that the taxpayer and its clients entered into a "reimbursement or other expense allowance arrangement" that satisfied the requirements of Reg. §1.62-2(c) --(f) and, therefore, Code Sec. 274(e)(3).

Transport Labor Contract/Leasing, Inc., CA-8, 2006-2 USTC ¶50,478. Rev'g Dec. 55,714, 123 TC 154 and Dec. 56,096(M), 90 TCM 42, TC Memo. 2005-173.

Amounts spent for telephone, lodging, transportation, etc., were deductible where they were substantiated in a diary by time, place, and amount and further substantiated by receipts or the oral testimony of the person incurring the expense.

W.T. Brown, DC, 68-1 USTC ¶9134, 280 FSupp 854.

Logbooks and monthly summaries omitting the purpose of expenditures, the business relationship of recipients, and sometimes the names of recipients and the places where they were entertained did not substantiate a chiropractor's claimed deductions for entertaining patients on his boat.

F.P. Rutz, 66 TC 879, Dec. 33,979.

Code Sec. 274(d) contemplates that no deduction is to be allowed for expenditures on the basis of approximations ( Cohan rule) or unsupported testimony. To meet the "adequate records" requirement of Code Sec. 274(d), a taxpayer should maintain an account book, diary, statement of expenses or similar record and documentary evidence, which, in combination, are sufficient to establish each element of an expenditure. It is not necessary to record information that duplicates information reflected on a receipt so long as such account book and receipt complement each other in an orderly manner.

Rev. Rul. 75-169, 1975-1 CB 59, modifying Rev. Rul. 54-497, 1954-2 CB 75.

A deduction for unreimbursed travel expenses was denied because Code Sec. 274(d) overrides the Cohan rule.

L. Witherspoon, 68 TCM 1333, Dec. 50,270(M), TC Memo. 1994-593.

Substantiation of claimed travel expenses by a corporation was made by use of receipts, an employee's diary and his testimony.

Champion Trophy Mfg. Corp., 31 TCM 1236, Dec. 31,643(M), TC Memo. 1972-250.

Air travel expenses substantiated by checks to a credit card company and by a diary were deductible.

M. Feinstein, 34 TCM 830, Dec. 33,271(M), TC Memo. 1975-193.

An outside liquor salesman adduced sufficient evidence to support his claim to a deduction for promotional drinks that he was required to purchase in order to secure liquor orders for which he was compensated on a commission basis.

C. Diller, 37 TCM 1332, Dec. 35,343(M), TC Memo. 1978-321.

Based upon a log book and receipts kept by the taxpayer, the court allowed a deduction for some of the food and lodging expenses incurred by the taxpayer when he was required to stay away from home overnight.

M.L. Johnson, 43 TCM 248, Dec. 38,703(M), TC Memo. 1982-2.

A physician's expenditures for business meals and gifts to referral physicians, employees and business associates were substantiated by the taxpayer's testimony and receipts containing notations describing the persons involved in each activity.

E.R. Beltran, 43 TCM 892, Dec. 38,884(M), TC Memo. 1982-153.

A taxpayer who testified at trial as to the business purpose for certain trips and who presented as evidence a summary sheet of the amount of the expenditures incurred on each trip, which included the business purpose of the trips, provided adequate substantiation of his business purpose for the expenses to be deductible.

S.J. Hernandez, 44 TCM 96, Dec. 39,095(M), TC Memo. 1982-327.

The taxpayer adequately substantiated and was entitled to a deduction for the costs of a rental car and meals incurred on a trip to care for his rental property.

D.A. Jenkins, 44 TCM 510, Dec. 39,195(M), TC Memo. 1982-407.

A self-employed taxpayer who supplied a log and credit card receipts as well as his oral testimony satisfied the substantiation requirement for part of his claimed travel and entertainment expenses. However, no deduction was allowed where taxpayer offered an estimation of entertainment expenses but no records for the claimed expenditures.

L.G. Anderson, 44 TCM 874, Dec. 39,279(M), TC Memo. 1982-475.

An insurance company's district manager was entitled to business expense deductions for periodic bonus payments made to his sales managers in addition to their overwrites, based on the recorded amounts appearing on ledger sheets as well as the canceled checks specifically bearing a notation that they were for bonuses.

V.C. McCue, 46 TCM 1450, Dec. 40,473(M), TC Memo. 1983-580.

An anesthesiologist was entitled to deduct certain expenses claimed with respect to a pleasure boat maintained for the purpose of entertaining other physicians to solicit referrals. With the exception of expenses for costs that were not self-explanatory in nature and required further substantiation, the court accepted the doctor's list of itemized expenses incurred in connection with the operation of the boat, since the boat was sufficiently connected to the doctor's business.

G. Detko, 53 TCM 186, Dec. 43,719(M), TC Memo. 1987-99.

A deduction was denied for the unsubstantiated expenses of entertaining on a taxpayer's boat.

R.G. Shannon, 35 TCM 1371, Dec. 34,037(M), TC Memo. 1976-304.

R.A. Roumiquire, 40 TCM 1137, Dec. 37,203(M), TC Memo. 1980-356.

A husband and wife who operated an audio-visual business exclusively out of their home were entitled to a deduction for candy, beverages, and light meals provided to clients during working meetings. Further, the taxpayers were entitled to a deduction for local entertainment of clients because their documentary evidence, coupled with the corroborative testimony of their clients, substantiated such deductions.

C.R. Hefti, 54 TCM 1555, Dec. 44,527(M), TC Memo. 1988-22.

A self-employed real estate broker was entitled to deduct auto, travel and entertainment expenses to the extent such expenses were substantiated. The taxpayer had disposed of the original receipts relating to the claimed expenses. However, a schedule of the expenses summarizing the information on the receipts, which the taxpayer made at the IRS's request, constituted an accurate record of his expenses for purposes of determining whether the claimed deductions were substantiated.

R. Fors, 70 TCM 420, Dec. 50,837(M), TC Memo. 1995-392.

Ordained ministers who presented credible testimony relating to the issue and adequately substantiated and reconstructed their travel expenses were allowed to exclude reimbursements of travel expenses related to their work even though they did not make an adequate accounting of their expenses. Their failure to produce more adequate records was the result of the IRS taking possession of the records and restricting the taxpayers' access to those records.

L. Whittington, 80 TCM 396, Dec. 54,051(M), TC Memo. 2000-296.

A couple who operated a nutrition supplement and personal care items business out of their home were entitled to deduct their substantiated ordinary and necessary business expenses. Based on the husband's credible testimony, and the available documentation, the couple was allowed deductions under Code Sec. 162 for meeting and convention expenses, cost of goods sold, meals and entertainment, car and truck expenses, travel expenses, royalty income expenses and equipment depreciation. The couple also satisfied the special substantiation requirements of Code Sec. 274 which applied to certain of such expenses.

S.G. Chaney, 97 TCM 1293, Dec. 57,758(M), TC Memo. 2009-55.

The taxpayer's diary and canceled checks were insufficient to substantiate his claimed deductions for hotel and food expenses in excess of the amounts determined by the Commissioner because the diaries did not include either the location of the taxpayer's travels or their business purpose and the canceled checks failed to reflect the business purpose of the expenditures.

J.C. Coursey, Jr., 33 TCM 205, Dec. 32,466(M), TC Memo. 1974-430.

Mere restaurant receipts, most of which were undated and about half of which failed to identify the restaurant or to indicate how many persons were served, failed to substantiate alleged entertainment expenses.

G.L. Gee, 36 TCM 327, Dec. 34,308(M), TC Memo. 1977-72.

A couple was denied a deduction for meals and lodging expenses incurred by the husband while away from home in pursuit of his trade as a carpenter because they failed to produce adequate records to substantiate the expenses.

B.W. Moretz, 36 TCM 1341, Dec. 34,662(M), TC Memo. 1977-334.

An attorney properly substantiated the business meal expenses incurred at a private club by providing invoices listing the names of clients and business partners entertained. However, the business relationship was not substantiated where the persons listed were not clients or business partners.

J.H. Lennon, 37 TCM 751, Dec. 35,146(M), TC Memo. 1978-176.

The taxpayer failed to adequately substantiate his business travel expenses where he simply drew cash with a check in the estimated amount of the travel expenses prior to a trip, and made a notation on the check as to the trip's destination.

G.T. Hicks, 37 TCM 1540, Dec. 35,418(M), TC Memo. 1978-373.

Lack of documentation in the form of receipts and diaries to verify deductions caused the Tax Court to use a low estimate for the travel expense and to disallow the entertainment expense claimed by taxpayer.

T.T. Rembusch, Jr., 38 TCM 310, Dec. 35,913(M), TC Memo. 1979-73.

The cost of meals consumed by an over-the-road truck driver on trips in pursuit of his employer's business was not deductible where unsubstantiated by expense records or other corroborating evidence.

C.W. Henson, 38 TCM 510, Dec. 35,959(M), TC Memo. 1979-110.

The taxpayer was unable to deduct certain expenses for meals and entertainment because he failed to properly substantiate each item of expense. In order to substantiate an entertainment expense, it is necessary to provide the amount, time, place, and business purpose of the expense and the business relationship of the party entertained to the taxpayer.

B. Schmoutey, 38 TCM 637, Dec. 36,004(M), TC Memo. 1979-142.

The amount of business mileage allowed as a deduction to a salesman was substantially reduced because of his failure to substantiate expenses by keeping a daily mileage record.

J.C. Perkins, 38 TCM 1087, Dec. 36,190(M), TC Memo. 1979-277.

A professional corporation was not entitled to deduct amounts paid to its president and chief medical officer for the rental of his trailer for entertainment of hospital personnel. The summary of a "log" was inadequate proof and contained only one entry for the period in issue.

S.I. Blake, M.C., P.C., 41 TCM 802, Dec. 37,656(M), TC Memo. 1981-41.

Although the evidence presented by the taxpayer indicated that claimed travel, entertainment, and meals and lodging expenses were related to a business purpose, the taxpayer failed to produce any records or receipts to substantiate the expenses. Therefore, the expenses were not deductible.

Aero Industrial Co., Inc., 40 TCM 147, Dec. 36,885(M), TC Memo. 1980-116.

Only limited employee business expense deductions were allowed to a truck driver who was away from home for 236 days in one tax year and 246 days in another. The taxpayer produced no contemporaneous documents or records reflecting additional amounts paid for meals or any amounts paid for lodging during the years in issue. While the costs of meals may be aggregated, expenditures for lodging must be substantiated by documentary evidence in the form of receipts, paid bills or similar evidence.

F.F. Wright, 40 TCM 258, Dec. 36,917(M), TC Memo. 1980-141.

Expenses incurred by a taxpayer and his family while traveling through the Pacific Northwest were not deductible as business expenses. The taxpayer's failure to provide any corroborating evidence of the expenditures or to attempt to apportion the costs attributable to his family and those attributable to his business-related purposes in taking the trip demonstrated the inadequacy as evidence of receipts that the taxpayer claimed represented expenses incurred on the trip.

J.P. Kennedy, 40 TCM 958, Dec. 37,150(M), TC Memo. 1980-310.

A long-haul truck driver was not entitled to a claimed meals expense deduction because he failed to substantiate the deduction with a record prepared contemporaneously with the expenditures.

D.G. Carpenter, 42 TCM 98, Dec. 37,983(M), TC Memo. 1981-298.

Receipts that did not explain the time, place and business purposes of travel expenditures were insufficient to sustain a deduction greater than that allowed by the Commissioner.

P.L. Cooper, 42 TCM 418, Dec. 38,064(M), TC Memo. 1981-369.

Similarly. --

W.D. Tyler, 43 TCM 927, Dec. 38,892(M), TC Memo. 1982-160.

R. Lewis, 44 TCM 887, Dec. 39,282(M), TC Memo. 1982-478.

H.J. Langer, 59 TCM 740, Dec. 46,616(M), TC Memo. 1990-268. Aff'd, per curiam, CA-8, 93-1 USTC ¶50,008, 980 F2d 1198.

G.G. Smith, 50 TCM 492, Dec. 42,244(M), TC Memo. 1985-336.

T.B. Javor, 61 TCM 2558, Dec. 47,330(M), TC Memo. 1991-201.

O.A. Steinberg, 69 TCM 2131, Dec. 50,530(M), TC Memo. 1995-116.

E. Clark, 83 TCM 1174, Dec. 54,637(M), TC Memo. 2002-32.

V. Perrah, 84 TCM 547, Dec. 54,935(M), TC Memo. 2002-283.

Worksheets prepared by a taxpayer's accountant were not sufficient without some documentation or testimony supporting them to sustain the taxpayer's burden of proof with respect to additional amounts claimed as deductions for telephone, automobile, and interest expenses.

P.M. Ramos, 42 TCM 924, Dec. 38,202(M), TC Memo. 1981-473.

A truck driver failed to comply with the strict requirement of substantiating by sufficient evidence corroborating his own statement the amount of his expenses, the time and places of travel, and the business purposes of his expenses. Instead, he kept records of his traveling expenses on "scratch sheets" to be transferred to his log books, but these scratch sheets were not offered into evidence. Further, the accuracy of the notations in the truck driver's log books was not credited because the I.R.S. agent who audited his returns testified that the log books offered in the course of the examination bore no notations of travel expenses.

C.R. Ferretti, 44 TCM 364, Dec. 39,158(M), TC Memo. 1982-375.

Various travel and lodging expenses claimed by the taxpayer were either disallowed or allowed on the basis of the evidence. She failed to introduce adequate records detailing the amounts and dates of her expenditures or identifying the purposes of the expenditures. Diaries submitted by her as a record of expenses were deficient, because having written the amounts scribbled on the pages four years after incurring the expenses, she failed to prepare the records "at or near" the time of her travels.

E.D. Gardner, 46 TCM 1283, Dec. 40,423(M), TC Memo. 1983-541.

A structural engineer adequately substantiated deductions for his lodging and automobile expenses, but not for his meals. The deduction for meals was disallowed because the amounts were based on estimates.

D.G. Massey, 47 TCM 1648, Dec. 41,160(M), TC Memo. 1984-210.

Alleged employee business expenses were nondeductible due to lack of substantiation. Although the taxpayer argued that he disposed of the relevant records after the IRS tax auditor conceded such expenses, the testimony of the auditor indicated that the records disposed of, canceled checks and receipts, were not adequate in any event.

R.C. Bacon, 56 TCM 1391, Dec. 45,517(M), TC Memo. 1989-90.

The director of four public companies failed to establish that travel and entertainment expenses related to meetings he attended on behalf of the companies. He failed to supply adequate records in the form of an account book, a diary, a statement of expense or a record book, and did not give specific testimony about the claimed expenditures.

C.H. Magruder, 57 TCM 117, Dec. 45,619(M), TC Memo. 1989-169.

The taxpayer, a design engineer, and his wife were taxable on the cost of a cruise that they took with the president of the company and that was paid for by the employer. At the end of the cruise, the taxpayer and the company president met with individuals who were believed to be a potential source of business for the company. Although the taxpayer claimed that half the cost of the cruise was business related, he failed to substantiate the claim.

C.C. Quantz, 58 TCM 1274, Dec. 46,342(M), TC Memo. 1990-39.

Deductions for entertainment expenses were denied where the business purposes of the entertaining were not substantiated. Claimed deductions for business gifts were disallowed where the only substantiation offered for the deductions was three altered receipts for cameras purchased during the year. However, two small substantiated gift deductions were allowed.

M.L. Swedelson, 61 TCM 1650, Dec. 47,111(M), TC Memo. 1991-10.

Automobile expense deductions claimed by an insurance salesman were disallowed. The taxpayer failed to substantiate the portion of expenses that were incurred in traveling to business meetings with clients. Entries in a diary that typically listed only a client's name and time of day did not meet the substantiation requirements. Travel and entertainment expenses claimed in connection with the taxpayer's travel to an insurance convention for each of the years at issue were limited to meal expenses for the number of days the convention was attended. Additional expenses were unsubstantiated. Similarly, deductions for business meals apart from the conventions were denied for lack of substantiation.

C.A. Cook, 61 TCM 2647, Dec. 47,354(M), TC Memo. 1991-222.

A construction worker who worked on numerous short-term projects could not deduct his daily commuting costs as trade or business expenses because they were not incurred away from home and were for personal reasons of his own choosing. He could deduct his mileage expenses for travel away from home because they were substantiated by corroborating evidence, but he failed to substantiate his estimates of food and lodging expenses.

J.M. Rotherham, 63 TCM 2971, Dec. 48,208(M), TC Memo. 1992-271.

Business deductions were disallowed because incomplete or no records were kept with respect to a number of the taxpayer's real properties and a business enterprise and because the taxpayer's law practice and investing activities were arbitrarily mixed. However, portions of the amounts claimed for salaries paid to relatives, business travel expenses, and other professional expenses were deductible as investment expenses.

J.C. DeMoss, 66 TCM 1834, Dec. 49,517(M), TC Memo. 1993-636.

A guest book maintained for a reception held by a real estate salesman and his wife was not a record sufficient to establish the business purpose of the reception. The guest book did not indicate the purpose of the reception or state the guests' business relationships with the salesman and his wife. Automobile expenses were also disallowed for lack of substantiation.

P.G. Cao, 67 TCM 2171, Dec. 49,669(M), TC Memo. 1994-60. Aff'd, CA-9 (unpublished opinion), 96-1 USTC ¶50,167.

A minister was allowed a depreciation deduction in connection with the business use of his personal automobile to the extent it was used to transport church members to various church-related functions. Written statements presented by a number of church members constituted direct evidence that was sufficient to corroborate the taxpayer's statements regarding the business use of the automobile. However, no deduction was allowed for unsubstantiated mileage traveled between the church and his other place of employment.

M.S. Clark, Jr., 67 TCM 2458, Dec. 49,735(M), TC Memo. 1994-120. Aff'd, per curiam, CA-5 (unpublished opinion), 95-2 USTC ¶50,507.

A taxpayer who sold tip sheets at greyhound racetracks was not allowed to deduct associated transportation expenses because, other than the taxpayer's testimony and that of her friend, there was nothing in the record to support her claimed deductions. Moreover, she maintained no records to appropriately document her trips.

W.S. Davis, 66 TCM 1598, Dec. 49,479(M), TC Memo. 1993-599.

An owner of a vocational rehabilitation business could not deduct as trade or business expenses amounts incurred for travel to Mexico. She produced receipts for only slightly more than half of the expenses claimed and thus failed to satisfy the substantiation requirements of Code Sec. 274. The taxpayer also failed to establish an underlying business purpose for the expenses that were substantiated. No contemporaneous written record regarding the business purpose of these expenditures was introduced. The only evidence offered by the taxpayer was her own testimony and that of her husband.

B.J. Shackelford, 67 TCM 3088, Dec. 49,904(M), TC Memo. 1994-271.

An attorney was denied deductions for travel and entertainment expenses because he failed to establish that the expenses were directly related to his law practice. Moreover, the canceled checks that he offered as evidence of the expenditures failed to satisfy the substantiation requirements. The attorney did not corroborate the expenses with contemporaneous account books, diaries, expense statements or similar documentary evidence, and his testimony regarding the travel and entertainment expenses lacked any specific detail as to amount, time, purpose or relationship to his business.

J.P. Rice, Jr., 67 TCM 2921, Dec. 49,833(M), TC Memo. 1994-204.

An individual who did not keep adequate records of travel, meals, and lodging expenses incurred during the course of his house painting and lightning rod installation business could not claim deductions for those expenses. The deductions could not be claimed based solely on the individual's uncorroborated testimony. However, depreciation deductions for vehicles used exclusively in the individual's business were permitted. The deductible portion of the remaining claimed business expenses was estimated by the court.

H.J. Carroll, 69 TCM 1711, Dec. 50,431(M), TC Memo. 1995-28.

Automobile expenses were disallowed since the taxpayer produced only a car lease, repair bills and various canceled checks in support of the deductions.

K. Keating, 69 TCM 2052, Dec. 50,513(M), TC Memo. 1995-101.

A salesperson for a cellular telephone company was denied a deduction for unreimbursed employee expenses for car transportation, parking, and meals and entertainment because she failed to substantiate the amount of the expenses. Although she produced various receipts and charts in support of her deductions, a record of a business purpose and relationship for the items was absent. Further, the salesperson's testimony was vague and unhelpful.

S.J. Bokhari O'Neil, 71 TCM 2317, Dec. 51,210(M), TC Memo. 1996-104.

A certified public accountant was denied Schedule A deductions for vehicle expense and other business expenses. The taxpayer's daily calendar that did not indicate mileage or business purpose for any of his appointments was not sufficient to substantiate his vehicle expense deductions. Moreover, the taxpayer was not permitted to introduce a sampling of mileage from a prior year as an estimation of his current business use.

B.R. Thomas, 72 TCM 570, Dec. 51,534(M), TC Memo. 1996-403.

Deductions for additional travel and entertainment expenses were denied because the travel receipts submitted by a corporation contained no indication that the expenses had a business purpose. The sole shareholder's uncorroborated testimony of the trips' business purposes failed to satisfy the substantiation requirements.

Group Administration Premium Services, Inc., 72 TCM 834, Dec. 51,588(M), TC Memo. 1996-451.

An individual employed as a teacher and a nurse was denied business expense deductions for the costs incurred in traveling to a health conference at which she presented a paper because she did not substantiate her claimed deductions. Although the expenses were ordinary and necessary, the meal, lodging, and travel expenses covered by the convention fee were not separately accounted for. Moreover, the portion of the fee that represented the cost of attending the conference was not distinguished. Other miscellaneous, unsubstantiated expenses were also nondeductible.

J.E.S. Fast, 76 TCM 171, Dec. 52,808(M), TC Memo. 1998-272.

A musician failed to provide records, other than receipts from restaurants and for bulk food purchases, to substantiate her claimed deduction for meal and entertainment expenses. Although she alleged that meals at restaurants with other musicians allowed her to make contacts who would help increase her earnings, casual conversation regarding business matters among business associates or fellow employees did not satisfy the business purpose requirement. However, she was allowed to deduct the cost of food purchased for a reception after one recital because she substantiated the expense with a recital announcement and food purchase receipts.

K.V. Popov, 76 TCM 695, Dec. 52,920(M), TC Memo. 1998-374. Rev'd and rem'd on another issue, CA-9, 2001-1 USTC ¶50,353, 246 F3d 1190.

Married taxpayers' entitlement to deductions for unreimbursed employee business expenses was determined by the court. The husband's testimony, together with his travel vouchers, substantiated his business-related automobile mileage. After accounting for differences between the standard mileage rates and the rates at which the husband was generally reimbursed, his deductible expenses for the use of his vehicle exceeded the amounts of his advances and reimbursements. However, the husband's testimony regarding his wife's claimed expenses and the written evidence in the record were inadequate to substantiate her claimed vehicle and travel costs.

V.C. Jackson, 78 TCM 48, Dec. 53,449(M), TC Memo. 1999-226.

An apprentice ironworker was denied a Schedule C automobile expense deduction for unsubstantiated miles driven while marketing Amway products. Although she produced a calendar and log book that purported to record the miles driven, the log failed to indicate the total mileage for all use of her vehicle during the taxable period. Furthermore, the credibility and reliability of the log, calendar and her testimony were questioned: the log book was in pristine condition; all of the entries were in the same color ink; the log book contradicted entries in her calendar; and the log showed her driving unrealistic distances.

D. Aldea, 79 TCM 1917, Dec. 53,853(M), TC Memo. 2000-136.

A car salesman who claimed that a flood destroyed his business records but who was able to produce a recently located, unorganized and confusingly notated business calendar, was entitled to deductions for meals and business expenses, including gifts and gasoline, purchased for his customers that were clearly reflected in the calendar. However, deductions were denied where the calendar entries were unclear, or the amounts or frequencies of the deductions seemed unlikely.

K.E. O'Brien, 79 TCM 2221, Dec. 53,933(M), TC Memo. 2000-199.

Married taxpayers could not deduct office expenses, travel and transportation expenses and meal and entertainment expenses associated with several businesses they operated in addition to maintaining their regular jobs, because they did not provide credible evidence to substantiate them. Further, the substantiation rules and the requirement that expenses be ordinary and necessary were applicable despite not being raised during audit, because the statutory notice of deficiency expressly raised these issues.

J.M. Nitschke, 79 TCM 116, Dec. 53,972(M), TC Memo. 2000-230.

An enrolled member of an Indian community was unable to deduct business expenses, travel costs and mileage incurred while performing activities on behalf of the community's tribal council. There was no evidence that he was performing such services with continuity and regularity, or that his primary purpose for performing the service was for income and profit. Moreover, even if the expenses were legitimately incurred in connection with a trade or business, the individual failed to adequately substantiate his claims. He maintained some records and offered those records into evidence at trial, but the documentation was inconsistent, incoherent, and insufficient to demonstrate which expenses, if any, were deductible.

J.B. Campbell, 81 TCM 1241, Dec. 54,261(M), TC Memo. 2001-51. Aff'd, per curiam, CA-8 (unpublished opinion), 2002-1 USTC ¶50,242.

A paramedical aesthetician who provided training to others in the use of micropigmentation services was entitled to deduct some of the meal expenses she incurred promoting her business because she provided detailed information as to the name, location and purpose of some of the claimed expenses. However, certain expenses were denied because receipts that she produced at trial merely identified the individuals entertained as "clients."

K.M. Hintze, 81 TCM 1386, Dec. 54,284(M), TC Memo. 2001-70.

A married couple was not entitled to deduct claimed transportation expenses because they failed to provide adequate documentation. Their mileage summary did not contain odometer readings entered at the time the vehicle was used, but rather, numbers based on figures in a computer atlas. They also failed to support their summary of truck repairs and maintenance or to indicate the percentage of business versus personal use of their truck.

M.R. Olsen, 83 TCM 1236, Dec. 54,649(M), TC Memo. 2002-42. Aff'd, per curiam, CA-9 (unpublished opinion), 2003-1 USTC ¶50,230.

A self-employed subcontractor was not entitled to deduct on his Schedule C unsubstantiated truck expenses and amounts paid as wages for casual labor in excess of those determined by the IRS. He failed to meet the adequate records requirement of Code Sec. 274 for the truck expenses and gave no oral or written evidence regarding his alleged employees. Consequently, the court lacked a basis on which to estimate such expenses. Additionally, the taxpayer was liable for self-employment tax.

H.J. Sullivan, 83 TCM 1746, Dec. 54,759(M), TC Memo. 2002-131.

An individual was liable for a tax deficiency as determined by the IRS because he failed to substantiate his claimed business expense deductions. The taxpayer did not present sufficient records to establish his claimed expenses. Testimony by the taxpayer was deemed unpersuasive.

H.C. Buck, 86 TCM 591, Dec. 55,346(M), TC Memo. 2003-314.

An individual who worked as a sales representative for a consulting firm was not entitled to all of his claimed unreimbursed employee business expense deductions because he failed to meet the substantiation requirements. The taxpayer's mileage spreadsheet which listed the trips he took, the number of miles driven and the clients he visited was not sufficient evidence of his automobile expenses because he failed to introduce written documentation to corroborate the entries. Furthermore, there were numerous inconsistencies between the spreadsheet and other evidence presented. A credit card summary offered as proof of claimed meals and entertainment expenses was not sufficient because it did not show the business purpose of the activity or the name of the person entertained. Also, the summary did not show a breakdown between business and personal charges.

J.M. Barton, 89 TCM 1126, Dec. 56,009(M), TC Memo. 2005-97.

Expenses a high school English teacher and his wife incurred for travel and his attendance at English literature classes in Oxford, England were disallowed. The teacher offered no substantiation of any amounts claimed. He offered only his own testimony that these were job-related expenses and failed to demonstrate a direct relationship between the course work and his employment as a high school English teacher.

P.M. Joseph, 90 TCM 26, Dec. 56,090(M), TC Memo. 2005-169.

Depreciation expenses claimed by an individual, including depreciation for an automobile used for business travel, were disallowed because the taxpayer did not produce any records or other evidence at trial to substantiate the amounts claimed. Supporting documents that the taxpayer attached to his pretrial memorandum did not count as evidence for purposes of the Tax Court trial.

R.O. Craft, 90 TCM 149, Dec. 56,120(M), TC Memo. 2005-197.

A welder' unsubstantiated automobile and meal expenses were not deductible as unreimbursed employee expenses. Although he incurred travel and meal expenses while working away from home, his automobile records were not contemporaneous with his travel or consistent with one another. His meal expenses were completely unsubstantiated, and were not consistent with the applicable federal meal and incidental expense (M&IE) rates that could be used in lieu of itemized expenses.

B.F. Nicely, 92 TCM 134, Dec. 56,593(M), TC Memo. 2006-172.

The taxpayer was not entitled to deduct any of the rental or business expenses reported on his Schedule C or Schedule E. Even though the taxpayer presented evidence of the expenses, there was insufficient information on the documents or in the taxpayer's testimony that showed any connection to his business or three rental properties for the expenses. The type and amount of the expenses were equally consistent with personal expenses. Moreover, the court could find no evidence upon which it could even base an estimate on the amount of the expenses that could be considered a business or rental expense.

W. Lenihan, 92 TCM 463, Dec. 56,691(M), TC Memo. 2006-259. Aff'd, CA-2 (unpublished opinion), 2008-2 USTC ¶50,598.

A taxpayer who kept no car expense records at all could not deduct the expenses on his Schedule C.

Y. Chong, 93 TCM 687, Dec. 56,813(M), TC Memo. 2007-12.

A salesperson could not deduct $1,600 worth of small gifts to his customers where he kept no records to substantiate (1) who received the gifts, (2) the nature of his (or his employer's) business relationship with the recipients, (3) the cost of the claimed gifts, (4) the dates of the gifts, (5) descriptions of the gifts, or (6) the business purpose of the gifts.

D.E. Benson, 93 TCM 1199, Dec. 56,925(M), TC Memo. 2007-113.

Various expenses claimed with respect to an individual's alleged stock trading and consulting activities were disallowed for lack of substantiation or recharacterized as employee expenses (i.e., itemized deductions) subject to the two-percent-of-adjusted-gross-income limitation. None of the supporting documentation provided by the taxpayer established a connection between the expenses incurred and any particular business activity other than his consulting business.

L.B. Arberg, 94 TCM 215, Dec. 57,066(M), TC Memo. 2007-244.

An individual's claimed deductions for several expenses including: tax preparation software, charitable contributions, and various business deductions were denied due to lack of substantiation. The individual failed to keep adequate records and he failed to prove that the business expenses were not reimbursed by his employer.

M.K. Boltinghouse, 94 TCM 416, Dec. 57,154(M), TC Memo. 2007-324.

While a taxpayer's mileage records were sufficient to support a deduction for vehicle expenses, certain other deductions claimed on separate returns filed by the taxpayer and his wife were disallowed. At trial the taxpayer provided as evidence detailed monthly mileage logs, which he credibly testified were created from contemporaneous daily and weekly logs. To the extent the mileage logs did not match the mileage disclosed on the returns, the court allowed the taxpayer to claim a deduction for the standard mileage rate multiplied by the lesser of the mileage shown on the return, the mileage used to calculate the deduction, or the mileage substantiated by the monthly logs. The taxpayer's deductions for actual leasing, insurance, and maintenance expenses incurred were denied because they were precluded by the use of the standard mileage deduction. The taxpayer also failed to provide evidence of the business use percentage of the vehicle, which is necessary to calculate such deductions. The deductions claimed by the taxpayer's wife on her return, for maintenance, repairs, management fees and interest, were not substantiated at trial and so were denied.

G.L. Larson, 96 TCM 73, Dec. 57,508(M), TC Memo. 2008-187.

The IRS provided guidance, in the form of questions and answers, on the substantiation requirements as amended in 1962. The information in the guidance has since largely been reflected in regulations.

Rev. Proc. 63-4, 1963-1 CB 474.

A corporate taxpayer could not recalculate previously taken deductions for more than 50,000 items posted to its meal and entertainment accounts during several tax years. Rather than identifying and documenting each claimed item, the taxpayer proposed to use a statistical sampling of the total population of its meal and entertainment items for each year to determine a percentage of the items improperly calculated. While the potential accuracy of the sampling method was not denied, the method was not permitted because the strict substantiation requirement of Code Sec. 274(d) requires an expenditure-by-expenditure determination rather than a close approximation.

Field Service Advice Memorandum 200209028, November 29, 2001.

Expenses incurred in renting office space and for accounting were substantiated by an individual because invoices bearing a "paid" stamp from another person, corroborated by the individual's testimony and a written contract, were credible evidence of the amounts paid. Likewise, wage expenses were substantiated because invoices bearing a "paid" stamp from another person, corroborated by the individual's testimony, were credible evidence of the amount of the wage expenses paid. Amounts paid for telephone expenses were estimated, pursuant to the Cohan rule. However, the individual failed to substantiate his claimed automobile expenses and a deduction for depreciation. A deduction for interest was not allowed because there was insufficient credible evidence to establish a rational basis for making an estimate of the deductible amount of interest paid.

K.E. Aref, Dec. 57,834(M), TC Memo. 2009-118.