It is important for church leaders to recognize that the tax code imposes strict limitations on the use of the standard mileage rate.
A taxpayer kept a log of his travel. Each day, he noted the beginning and ending mileage but did not note each place he stopped or the business purpose of the stop. For three years he claimed deductions for 67,910 miles, 62,456 miles, and 58,616 miles for the business use of his cars. The IRS audited his returns for these years, and denied a deduction for any of these miles on the ground that they were not adequately substantiated. The taxpayer appealed to the Tax Court. Royster v. Commissioner, TC Memo. 2010-16 (2010)
The court noted that a deduction is not allowed for the business use of a car unless the taxpayer substantiates:
- The amount of such expense,
- the time and place of the travel, and
- the business purpose.
In the absence of adequate records, a taxpayer "may alternatively establish an element by his own statement, whether written or oral, containing specific information in detail as to such element" and by "other corroborative evidence sufficient to establish such element." However, the tax code specifically precludes the deduction of automobile expenses on the basis of an approximation or a taxpayer's uncorroborated testimony.
Why it matters to churches
The standard mileage rate is a convenient way for taxpayers to compute a tax deduction for the business use of their car. Employers, including churches, can use the mileage rate to compute the amount of a reimbursement to be paid to employees for the business use of their cars. In either case, it is essential for the taxpayer to be able to prove the following:
The miles for each business use of the car;
- Total miles driven during the year;
- Date of each trip;
- Business destination;
- Business purpose.
A failure to maintain a logbook or other documents that substantiate these items may result in the denial of a tax deduction, or in the treatment of an employer reimbursement as nonaccountable (and therefore reportable as taxable income).