Lack of bookkeeping records loses deductions

AIPB VOLUME 16: Issue 30


The case: A father and son co-owned a home-remodeling and construction business as an S corp. On their S corp tax return, they claimed substantial deductions for fuel, repair and maintenance expenses for their construction equipment, and for business use of their personal cars. The IRS denied all the deductions. Held: For the IRS. The only bookkeeping records the taxpayers provided were company bank statements and QuickBooks records to substantiate the construction equipment expenses, and business use of their personal cars. The business use of their personal cars was for driving to the office—commuting—and driving to worksites and between worksites. But the QuickBooks and bank records established only the amounts of each expense and the date it was paid—not the business purpose and mileage of each business trip in each car. Since commuting is not a deductible expense, their personal cars could not have been used 100% for business. And the company's books did not include a travel log or other records to document the percentage of business use. The court said it believed the vehicles were used for trips to and among worksites, but without a travel log or other records to show the percentage of business use these trips represented, none of the passenger vehicle expenses were deductible, The court would have been willing to estimate reasonable fuel costs for the S corp construction equipment, but there were no records of what equipment the business owned during the tax year or how much fuel the equipment might have used as a basis for estimating fuel expenses. [Berry v. Commissioner, T.C. Memo. 2021-42]


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