The case: C was a sole proprietor whose consulting business primarily involved traveling within 30 miles of her home to train clients in software. She kept a contemporaneous mileage log, generally recording the date or range of dates for a trip, the city, a brief description of the purpose of the trip, the number of miles driven, and the person or people she consulted with. To compute her vehicle expense deduction, she multiplied the standard mileage rate by the number of miles driven for business and added some actual operating expenses. The IRS denied all the vehicle expense deductions.

Held: For the IRS. A taxpayer cannot deduct both the standard mileage rate and actual operating expenses— it’s one or the other.

The court denied both treatments because the taxpayer did not maintain adequate records as required by §274, Disallowance of certain entertainment, etc., expenses, and the accompanying regs, which require that records establish:

1. The amount of the expense
2. The time and place the expense was incurred
3. The business purpose of the expense

Also, because vehicles are "listed property"—assets that lend themselves to both personal and business use, such as cars, PCs and phones—the taxpayer must establish both total use and the proportion of business use. The travel log lacked crucial details. Many entries included multiple days of travel together. Other entries excluded required facts such as the time and place of the travel. Because the records did not comply with §274(d) requirements, all the travel deductions were denied.

[Cooney v. Commissioner, T.C. Summ. Op. 2019-10]

AIPB tip: Even if the IRS auditor believes your company or client used a vehicle for business and can determine the number of miles driven, the deduction will be denied if the records do not include all the details required by §274 for each trip.