Audit about mileage

[Pacun]

client made a million dollars home repairing and has 4 vans. Auto deductions using miles is $34K.  For some reason the officer sought it was only one van and thought it was excessive. She was always asking about personal usage and I explained to her that it was a van full of materials, tools and you name it. The front seat of those vans barely have space for the passenger. She wants logs but she said that she would take amounts from the bank statements. Actual expenses are $25K in gas and maintenance plus 5K in car insurance. I told her that without depreciation, we are almost to the amount claimed but she wants to see the charges, which we are highlighting for her.

Reporting a million dollars, I wonder what the industry average for auto expenses is.  I told her that auto expenses for construction people was ordinary and necessary but she didn't entertain that thought. Any suggestions will be appreciated.

[DANRVAN]

25 minutes ago, Pacun said:

. Actual expenses are $25K in gas and maintenance plus 5K in car insurance. I told her that without depreciation, we are almost to the amount claimed but she wants to see the charges, which we are highlighting for her.

Sounds like your client might be a ahead to use actual mileage in that case. 

 

25 minutes ago, Pacun said:

She wants logs

Are the vans left overnight at place of business, then driven to and from job sites?   Maybe taken home at night for security purposes?

Are there any maintenance records etc. showing odometer readings from beginning of year to end of year?

Just some thoughts.   Helpful or not, good luck!

 

[DANRVAN]

23 minutes ago, Pacun said:

auto expenses for construction people was ordinary and necessary

 

For sure, hauling tools and materials.

[mcb39]

My construction clients never empty out their vans and covered trucks.  They have other vehicles for personal use.

[ILLMAS]

Ask to speak to their manager, think of it as a second opinion.

[schirallicpa]

I tell my clients to take pictures of everything they have that we put on the tax return.  When they buy it, when they have major overhaul.  And with vehicles a picture of the odometer at year end.  Or if its a pick-up truck, and has to haul trailers, take a picture when the trailer is on and loaded.

We had a logging company that had an Oscar Saw mill.  Any quick google search shows you it's a piece of equipment, but our IRS auditor who lives in NYC thought it was a building and wanted to depreciate over 39 years.  We sent a picture.  

"Down by the old, not the new, but the old mill stream..."  Nope.

If she keeps giving you a run around ask to bump up to the manager. 

 

[Lee B]

Before you go to a manger, you need to guide your client through the reconstruction of his mileage records.

If he is in construction, he has records of jobs with dates worked, bills for supplies picked up etc.

This auditor is bit over the top but her position is correct.

If you don't push your client to reconstruct his records he will never learn the importance of keeping them.

[Lee B]

Some years ago at a CPE Class, I was talking to another EA who had a good sized construction client with a number of vehicles.

His client ended up in a very nasty audit where his client made no attempt to keep any mileage records

and decided not to make any attempt at reconstruction. The auditor denied all vehicle related deductions and made it stick.

It cost his client in the high 5 digits in additional taxes.

 

[Sara EA]

Oil change records record mileage and may help here.

I was at a liaison meeting once when the IRS person presenting said the only vehicle IRS believes has no personal use is a cement mixer.  The workers may take the vehicles home at night, out to lunch, to the bank, etc.

[Pacun]

Well, my client told the auditor that he took his vans to a friend mechanic that didn't give him a receipt. When the auditor left, I told him "you should at least use Jiffy Lube because they write down the mileage when doing oil changes". He said, the vans don't fit in their installations, which I didn't know. But I have seen his van and they are tall and all of them have 2-4 ladders on top.

Another interesting thing that I noticed in this audit, is that the auditor has access to all years. I thought they only had access to the year in question and then they requested access for the adjacent year but I was wrong.

I believe that the IRS will have to accept actual expenses in a review. This client was audited in 2008 but during that visit, the auditor said that he was within the industry's mileage allowance or something like that. 

Thank you to all of you who have replied to this post.

[joanmcq]

It sounds like they are qualified non personal use vehicles. Any vehicle that is “not likely to use more than a de minimus amount for personal purposes.” Because of its design.   They are exempt from substantiation requirements but can only use actual expenses for a deduction. 

[Pacun]

Auditor wants to see gas receipts and client doesn't have them all.  Bank statements show that each trip to the gas station is about $80.  I explained to auditor that gas stations ring your gas separate and that $80 will not fit in a regular vehicle... (I have a Rav-4) and I can only fit about $55. I guess auditor thinks that my clients goes to gas station to spend $80 in snack just to have a tax break and he does it every other day.

[Catherine]

I should think that having a slew of receipts of around $80, plus statements showing others, is reasonable (I know, reasonable and IRS don't match far too often). But in addition to receipts being lost, the $%^& pumps don't *give* receipts (out of paper, broken, etc) more and more often these days, and sometimes they can't give you a receipt inside, either, because the employees don't know how to do that. 

If you can show a clear pattern and back it up with a preponderance of receipts, and the auditor won't budge, go up the food chain to the supervisor. 

[Pacun]

Actually, the return was too much for the auditor and the manager was at our last meeting. The manager knows about taxes and my clients situation and she didn't question the mileage and understood that the vans were not personal vehicles and was easier to deal with her. I am glad she came to the meeting and show the auditor how to conduct the interview. 

She was happy with what we showed her and we are moving along. Of course there were some items that will be taken out but she will be add some deductions that were not included.

[Catherine]

On 4/6/2023 at 9:38 PM, Pacun said:

Of course there were some items that will be taken out but she will be add some deductions that were not included.

At some point I wonder if they have to show they did something, to justify being paid to harass innocent taxpayers instead of chasing down the true scofflaws.