Don't be a Flake: The Importance of a Bulletproof Mileage Log

Navigating the highways and byways (or as it is often with me, the rabbit holes and wormholes) of tax laws can be daunting for anyone. We’ve all heard tales of those who’ve run into IRS troubles, and more often than not, these tales could’ve been avoided with just a bit more organization and foresight. The case of the Flakes drives home the paramount importance of one thing: a meticulous mileage log. But why? Let's dive in. 

The Basics You Must Know: 

- Having an inadequate mileage log can mean spending more quality time with the IRS than you ever hoped for. 

- Even a well-reconstructed mileage log can fail if it isn’t genuine. 

- The tax code is crystal clear: without adequate mileage records, no vehicle deductions for you – whether you’re dealing with the IRS or, ultimately, the Tax Court. 

- If the IRS sniffs out any inconsistencies, a subpar log could mean you get fewer deductions than you’re actually entitled to. The worst-case scenario? Zero deductions. Nope…that’s not a misprint. 

- Whether you’re a proprietor or a corporate owner-employee, you need a mileage log. And corporate owner-employees? They need to hand it over to the corporation. 

The Golden Rule 

Always, always keep a meticulous mileage log. 

Now before I go any further, I want to clear up one thing, I’m not calling you a Flake…yet.

The Flake Fiasco 

Meet Jim and Martha Flake. They became embroiled in a quagmire with the IRS, contending with tax deficiencies and potential fraud penalties. Their problems started when the IRS began auditing their tax returns. This wasn't a brief audit. For an entire year, every two weeks, they had cozy meetings with an IRS revenue officer in their home. 

During these meetings, the Flakes handed over odometer readings, credit card statements, fuel receipts, appointment book notes, and even reconstructed calendars. They believed these met Section 274(d) requirements. But, they were wrong. 


The Dreaded Section 274(d) 

Gone are the days when a ballpark estimate of your business mileage would pass muster. Now, you're expected to validate every single mile, minute, and purpose for your vehicle use. Estimations? Not on the court's watch. Ok…maybe not EVERY minute…but read on, anyway. 

The Courtroom Drama 

The court gave the Flakes no respite. Why? 

  1. Their mileage records were hastily put together during the audit.

  2. These records had mathematical discrepancies and were out of sync with their tax returns.

Simply put, the court found their evidence unreliable and insufficient. The Flakes ended up not receiving a penny more than what the IRS had initially allowed. To add salt to the wound, they also faced a 20 percent accuracy-related penalty. 

But they weren't the only ones. Take the case of the Martins, for instance, who saw their sizable auto and travel expense deductions vanish due to inadequate mileage logs and lack of proof. This underscores the point that poor logs can lead the IRS to dig deeper, putting more of your claims under scrutiny. 

Heed the Tax Form 

When filing your tax form, you're asked specific questions about your vehicle usage. IRS Form 4562 lays out these questions for up to six vehicles. Your mileage log is the keystone for your answers. Those questions/fields are as follows:
1. Do you have evidence to support the business/investment use claimed?
2. If “yes,” is the evidence written? ß PAY ATTENTION HERE – I would imagine they watch that “Yes/No” answer carefully…
3. List your total business/investment miles on each vehicle
4. List your total commuting miles on each vehicle
5. List your total personal miles on each vehicle 

The Danger of Flimsy Logs 

There are numerous mileage logs available, from paper versions to fancy GPS integrations. But remember: a good log should be in harmony with IRS requirements. And for that, you need two things: 

  1. An understanding of mileage rules.

  2. The discipline to maintain a log.

Even if you use tech solutions, ensure they capture the nuances like business reasons. If using an app, remember to download, review, and make essential notes periodically. 

Key Takeaways: 

  1. Consistency is Crucial: Keeping a regular mileage log isn't just about being organized. It's a testament to your commitment to following the rules.

  2. Knowledge is Power: A bad log can turn a routine IRS check into an audit nightmare. Stay informed and diligent.

  3. Professional Help is Priceless: At Tim Thompson CPA PLLC, we emphasize the importance of meticulous record-keeping and staying updated on tax laws. It's the difference between smooth sailing and a year-long IRS ordeal.

In conclusion, don't let your tax journey turn into an epic of errors like Jim and Martha Flake. Maintain your mileage log diligently, stay informed, and always consider professional help for the best outcomes. 

Postscript: It’s not always the worst case 

As I discussed this post with my long-time friend Kelley Brubaker over at @profit.scale.thrive, she retold a story to me about an audit she assisted with a few years back that landed all the way up to the front steps of the US Tax Court. With an IRS examiner gone overboard about the mileage log requirements, and a taxpayer not taking “no” for an answer, her case pushed almost as far as it can go in this country. The sticking point? The examiner would NOT accept a mileage log because…get this…and I’m not making this up…the taxpayer’s home address wasn’t written in the “From” field on EVERY SINGLE ENTRY! Kelley laughed as she told me the story of the Appeals Officer (last chance before it’s heard in US Tax Court) who looked up and said, “Seriously? This is why we’re here.” Fastest non-case ever…the Appeals Officer threw out the examiner’s challenge and awarded the mileage deduction to her client.  

But I tell you this story just to show you how picky they can be… 

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Tim Thompson CPA PLLC is located in Dallas, Texas and is an expert in all areas of Texas taxes. We can help with individual or business taxes, tax resolution, tax preparation, and tax planning services.