The IRS Has a Serious Stance on Tax Preparer Standards for Mileage

February 17, 2012 by  Filed under: Taxes 

The IRS does not generally require taxpayers to maintain records of tax-deductible expenses in a particular format. Consequently, a Registered Tax Return Preparer usually accepts expense claims from a client regardless of the record keeping system used. One of the rare exceptions to this process is the specific detail demanded by the IRS to deduct business use of a personal vehicle.

A deduction for business mileage necessitates a record showing the dates, locations, and business purposes for all claimed miles. An important aspect of every tax preparer career is reminding individuals about having a mileage log. Documentary evidence must establish each business-related trip.

A tax preparer does not have to examine a client’s actual detailed mileage records. Just a summary of mileage results is sufficient for use as tax preparer material. However, tax practitioners should not use approximations from a taxpayer’s unsupported testimony. No deduction is allowed for estimated business mileage.

A recent Tax Court case illustrates how a California enrolled agent could have aided a taxpayer in avoiding an unfavorable ruling. The Court pointed out that a contemporaneous mileage log is not required as long as a reconstructed record has a “high degree of probative value.” Therefore, a credible mileage statement is necessary. Highly questionable situations are business mileage claims exceeding 25,000. That entails a lot of driving – over 100 miles per business day. Although not impossible, the IRS begins to wonder how someone is accomplishing any work when so much driving allegedly occurs.

In many cases, clients do provide their complete mileage logs to tax return preparers. In other cases, they use approximations. This is possibly conducive with tax preparer training as long as some substantiation is presented. For example, a taxpayer may convey to the preparer of his tax return that business mileage consisted of travel three times per week on a 10 mile round trip to a specific location for the same purpose each time.

A little mathematics by a tax practitioner to calculate resulting mileage from reasonable client figures is acceptable. Recording unsupportable claims of business miles is dangerous to both taxpayer and tax preparer. The Tax Court was clear in the California case that documentation is required to substantiate time, place, and business purpose of claimed miles regardless of whether the record is contemporaneous or not.

Another detail can create problems with business mileage records. That is, a mileage record is required for each vehicle. People with more than one vehicle used for business must have separate logs. This often occurs when a new vehicle is purchased during the year. But this circumstance is also possible when an individual owns more than one personal vehicle and uses both for business purposes. Proactive tax return preparers deliver this valuable information to taxpayers who drive for business.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Fast Forward Academy is a leading publisher of education for Registered Tax Return Preparer and tax professionals. Access to free questions for the tax preparer career is available on their website.

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