Dunford, Tax Court Memo, 2013-189
A married couple lived in Illinois. For 2005 and 2006, the tax years at issue, they filed a joint tax return with a Schedule C consulting business. Most of the work was performed away from the taxpayer’s home in Illinois, sometimes working at or near client’s business locations.
For 2005, the taxpayers were away from home for half the year (the colder months), and for 2006, they were away the entire year. During these periods, they traveled and stayed in their motor home. The motor home had a sleeping area, a bathroom, and a kitchenette with a countertop. Across the vehicle from the kitchen counter was a second countertop that was used as a desk, and on which the taxpayer had a computer and office supplies.
Throughout 2005 and 2006, the taxpayers traveled all across the U.S., but most of their travel time they were in Florida, California, and Nevada. The taxpayer’s three children also lived in Florida, Nevada and Quincy, Illinois, locations where the taxpayers spent significant time. They kept no contemporaneous log that showed the business character of their travel. A reconstructed log of their travel that was entered into evidence in court often contradicted the documentary evidence of their whereabouts. They had blended purposes, personal and business, for their travel, but their dominant motive for their travel plans was personal (the pleasure of being in the locations they chose and of being near their children). Their clients reimbursed most of their travel expenses for airline, auto rental, standard mileage rate, per diem, meals, and office-related expenses.
The reimbursements included nearly all of the mileage they recorded in their activity log. All of these reimbursements were deducted as travel expenses or meal expenses on Schedule C. During the audit, the IRS did not dispute the deductibility of reimbursed expenses that the taxpayer’s had billed to their clients. The disallowed deductions were for non-billed expenses.
Included in the expenses disallowed by the IRS were vehicle expenses including repairs and maintenance, depreciation, insurance, tax and licenses, and utilities. These travel-related expenses were disallowed for at least one of the following reasons:
- The taxpayers used the motor home as a residence during 2005 and 2006, so IRC section 280A disallows the deductions.
- The taxpayers had already claimed and been allowed deductions for their business use of their motor home and other vehicles based on the standard mileage rate, so that deductions for actual costs would be duplicative, and
- The taxpayers failed to adequately substantiate their entitlement to many of their vehicle-related deductions.
IRC section 280A states that no deduction is allowed with respect to the use of a dwelling unit which is used by the taxpayer during the tax year as a residence, unless the business use of home exception is met. IRC section 280A(c)(1) allows a deduction “to the extent such item is allocable to a portion of the dwelling unit which is exclusively used on a regular basis” for business. The taxpayers did not prove that there was an identifiable portion of their motor home that was used exclusively for business purposes. The area they seemed to put forward as the home office was the countertop that was used as a desk. But they did not make any showing of the percentage of the vehicle that constituted this area (it would be a very small percentage), and it is implausbile to suggest that, in the cramped quarters of a motor home, an unclosed area like the countertop would somehow be exclusively reserved to business activity. Accordingly, the court ruled all deductions (other than deductions for interest expenses on Schedule A) claimed with respect to the use of their motor home were disallowed.
Actual expenses for the use of their motor home were also disallowed on the grounds that many would be duplicative to the standard mileage rate deduction that the IRS had already allowed based on the taxpayers billing their clients for reimbursement of travel expenses. Actual expenses for the use of their motor home were also disallowed on the grounds that they failed to provide adequate substantiation for these travel costs. A motor home is considered listed property, and deductions for business use of listed property require a higher level of substantiation than the taxpayrs provided.