The case: An S corp deducted some expenses for travel and meals, independent contractors (ICs), and office supplies. The IRS then denied all the deductions and the case ended up in court.

Held: For the IRS. For travel and meals, the S corp provided bank and credit card statements that showed charges to airlines and restaurants equal to the deductions. These statements also showed cash withdrawals equal to the meal and related expense deductions.

But the statements did not satisfy requirements for travel and meal expenses under §274, Disallowance of certain entertainment, etc., expenses. The statements did not identify the business purpose for the trips or the other expenses, or the dates of the trips and expenditures—only the dates the taxpayer’s account or card was charged for them.

For the payments to ICs, the taxpayer offered carbon copies of checks. While the checks provided the payees’ names and the dates and amounts of the payments, the checks did not substantiate the services performed by the ICs or that the payments were ordinary and necessary business expenses. To support the office supply deductions, the taxpayer provided a bank statement showing charges to Office Max. Although the bank statement lacked details of what was purchased, the court believed the taxpayer’s testimony that she did not do personal shopping at Office Max. Because office supplies expenses are not subject to the enhanced substantiation of §274, the office supply deductions were allowed.

Deductions for groceries—coffee and snacks for the office—were denied because the receipts were illegible and did not state which grocery items were purchased for the office.

[Ward v. Commissioner, T.C. Memo. 2021-32]