I’ve chronicled any number of petitioners who come seriously unglued when Reg. Section 1.274-5T strict substantiation tags out their car and truck expenses, whether as the now-sequestered unreimbursed employee business expense deduction or expenses for production of income. CSTJ Lewis (“The Name Alone Suffices”) Carluzzo says “mox nix, year-at-issue is pre-TCJA, treat both the same” so Noah Schmerling and Susana Schmerling, T. C. Sum. Op. 2023-14, filed 4/4/23, get $12K of travel expenses using the BMW X3 he leased from his boss allowed.

“Petitioners prepared a noncontemporaneous mileage log showing petitioner’s use of his leased BMW X3 during [year at issue]. Petitioners’ mileage log does not show a beginning destination, nor does it state the business purpose of the use of the automobile, as required under Temporary Treasury Regulation § 1.274-5T(b)(6). Nonetheless, petitioners’ mileage log substantially complies with the ‘adequate records’ requirement of the regulations; to the extent their log is deficient, they have provided corroborative evidence sufficient to establish the required elements. See Treas. Reg. § 1.274-5(c)(2)(iii); Temp. Treas. Reg. § 1.274-5T(c)(2).

“We have reviewed the evidence and compared the mileage log with [Boss’] commission list records and petitioners’ credit card and bank statements. Taking into account petitioner’s personal use of the BMW X3 and the extent to which petitioners have properly substantiated expenses for travel, car and truck, and rent or lease of other business property, we find that petitioners are entitled to deduct $12,000 attributable to actual expenses.” T. C. Sum. Op. 2023-14, at p. 9.

Noah is sales manager for a BMW dealership. He gives “tips” to certain fellow employees, and auctioneers at used car auctions, whereat Noah buys vehicles for his boss to offload, and some of those are ordinary and necessary enough to be allowed as deductions. Noah also gets bonuses directly from BMW and commissions for the sale of extended warranties from an entity unrelated to his boss the dealership. No one claims Noah is an employee of either, but the income is inseparable from his work as sales manager at the dealership, so no Schedule C treatment for Noah.

I don’t know if CSTJ Lew would buy a used car from Noah, but he sure bought Noah’s mileage log.