Substantiating Expenses

Statutory requirements require taxpayers to provide specific detailed information to substantiate expenses for the following:

Travel expenses (including meals and lodging while away from home);

• Any item with respect to an activity that is of a type generally considered to constitute entertainment, amusement, or recreation, or with respect to a facility used in connection with such an activity;
• Business gifts (which are limited to $25); and
• Expenses with respect to any listed property, i.e., autos, (as defined in Sec. 280F(d)(4)).

A recent case, Garza, demonstrates that this is an all-or-nothing scenario, as a lack of substantiation will disallow these expenses, even if the court believes that a legitimate expenditure was made. In Garza, the court said that “While we believe that petitioner had business travel expenses in relation to his employment, the Court must heed the strict substantiation requirements of section 274(d).” To support its ruling, the court cited DeLima, in which the Tax Court indicated that it had no doubt that the taxpayer used a vehicle for business purposes, but it was bound to deny the vehicle expense deduction because she failed to follow the statutory and regulatory requirements.

Listed property, covers assets that are used by many closely-held […]