08/31/2022
Keep receipts!
Note: Although this case involved a sole proprietor, the same rules apply to LLCs, S and C corps. and partnerships.
The case. S’s proprietorship provided nonemergency transportation for medical patients. He owned 11 to 12 vehicles, for which he took significant business-related expenses, including fuel, repairs and maintenance. The IRS denied most of them for lack of documentation.
Held: Mostly for the IRS. While the court has some flexibility on truck-related expenses and could estimate them from the taxpayer’s records, most of his vehicles were cars (“passenger autos”). Unlike trucks, cars are subject to the strict recordkeeping of §280F, Limitation on depreciation for luxury automobiles; limitation when certain property used for personal purposes.
The court noted that the taxpayer had no logs or other documents substantiating 100% business use of the vehicles—only receipts for the amount of each expense.
Instead, he submitted as evidence a personal statement that the cars were driven for business. Because his business was a proprietorship, all the vehicles were owned in his name and there was no way to distinguish personal use from business use.
The IRS had denied more than half the vehicle-related deductions, and the court agreed, saying the taxpayer lacked the required §280F required support for higher deductions. [Spencer v. Commissioner, T.C. Summ. Op. 2022-8]
