In Uncategorized on 12/02/2015 at 18:55

No, not a misspelling of the 1964 James Baldwin drama, rather this is the story of index-card records and all-night driving that gets more business miles deduction than IRS would allow to David L. Charley and Julia A. Charley, 2015 T. C. Memo. 232, filed 12/2/15.

Mister Charley owned an oil-purification business, which separated condensed water, particulates and acid from waste oil, preserving its lubricating qualities, and making it suitable for sale to plastic injection molders who use hydraulic oil.

Mister Charley roamed far and wide. But he never graced any motels with his presence. He would drive all day and all night to return to his home in the Show Me State, because “Mr. Charley testified that petitioners had spent $2,500 to rid their home of bed bugs after one hotel stay. Since then, he does not stay at hotels when he travels.” 2015 T. C. Memo. 232, at p. 4, footnote 6.

But the key to the case is Mister Charley’s index cards, which IRS tried to exclude on foundational grounds. But Judge Paris overrules IRS, lets Mr. Charley play the cards, and thereby hangs this tale.

“Mr. Charley recorded the point-of-contact, telephone number, date he visited the client, and the client’s business address on an index card. Each index card was created at the time of the travel to that client. Although the mileage from Mr. Charley’s home to each client was not included on the index cards, most of his client’s business addresses included the city and State where the client was located. Some of the index cards record visits to multiple clients in the same geographical area.” 2015 T. C. Memo. 232, at p. 4 (footnote omitted.)

There are mistakes and inconsistencies in the cards, but there’s enough stuff to satisfy the Section 274 extra-substantiation trap.

“While Mr. Charley cannot substantiate his business miles with a mere statement about his driving habits, he can substantiate them by ‘his own statement, whether written or oral, containing specific information in detail” about them and by ‘other corroborative evidence sufficient to establish’ them. Sec. 1.274-5T(c)(3)(i), Temporary Income Tax Regs., 50 Fed. Reg. 46020 (Nov. 6, 1985). The Court finds that Mr. Charley substantiated that he had business mileage expenses for 2010 through his index cards and testimony–although not the amount reported on petitioners’ return. See Smith v. Commissioner, 80 T.C. 1165 (1983) (taxpayer substantiated business mileage by producing schedule of his business travel that listed city and State he traveled to and from and dates of travel). While Mr. Charley’s travel schedule may have been extreme, such extremity is not a bar to deducting otherwise properly substantiated expenses. See Scully v. Commissioner, T.C. Memo. 2013-229, at *18.” 2015 T. C. Memo. 232, at p. 11.

Mr Charley gets less than what he claimed, and IRS drops the Section 6662(a) accuracy chop.

IRS allowed Mister Charley his legal fees deduction despite a missing witness. “Mr. Charley’s legal and professional services expenses were for the drafting of multiple business service agreements. The attorney who drafted the agreements passed away before trial.” 2015 T. C. Memo. 232, at p. 2, footnote 4.

Guys, I do not recommend this course of action to get your clients’ legal fees allowed.

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