Hi all,

I need help regarding the below issue.

My tax home is located in FL while I was travelling to VA and LA working for various telecom clients. My salary for Y2005 was $114K. I expensed ~$17K out of this as part of business expenses since my employer does not provide me with any accountable per diem plan. The expense included lodging/meals/flight/gasoline/phone etc.

My CPA made a mistake (I am part responsible too) by putting round figures in my 2106 form which indicates all my expenses claimed for that year. This raised a red flag and now the is IRS is coming back and asking for more clarifications eg: receipt copy for all expenses > $75, lodging receipts, copies of logs/diaries/notes maintained to prove that the business expenses were made as part of a legit business reason and it is both necessary and ordinary to the pursuit of my business.

I have lost all my receipts due to fire and all I got is the credit card statement and few online logs which confirms my business trips.

Please suggest what is the best way to approach/reply this. I am changing my CPA to get a different view but thought of checking with you all about this issue.

Your help and comments will be appreciated!

Regards
--Mike

The credit card statements should be enough.

Mike:

The credit card statements are a start, but you need to reconstruct a daily log using your memory and the records available.

If the log and credit statements match and can be verified at least in part, then the IRS will likely accept your deductions as valid under the Cowan precedent.

Quote:

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Originally Posted by AtlantaTaxExpert

Mike:

The credit card statements are a start, but you need to reconstruct a daily log using your memory and the records available.

If the log and credit statements match and can be verified at least in part, then the IRS will likely accept your deductions as valid under the Cowan precedent.

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I created a Google calender and for each day I documented whatever expense I could remember from 2005 supported by the credit card transactions (obviously cash transactions are lost). Do you think in addition to these logs in details, credit card statement and may be a diary (which I am going to make now based on logs etc) will suffice?

Thank you all for the detailed comments.

Mike:

Download a copy of IRS Pub 1542 from www.irs.gov; it contains the federal per diem rates.

You can claim either the standard per diem for each locale in question, or use the HIGH-LOW rate if you can substantiate that you paid the higher rate for lodging and meals.

The beauty of claiming the standard per diem is that the IRS accepts such claims at face value, with NO REQUIREMENT for receipts to prove the claim.

Hence, if you can show that you were in VA or LA on a specific date (that's where the CC statement comes in handy), then you can claim the federally-accepted standard for Meals and Incidental Expenses (M&IE) rate for that locale with NO NEED for any receipts for these expenses! I believe the standard country-wide rate for M&IE is $42.

That will allow you to claim at least SOME of the cash expenditures.

I KNOW the process works and is accepted by the IRS, because I represented a client (a long-haul trucker) at an IRS audit and justified his daily expenses using the M&IE rates cited in IRS Pub 1542.

Quote:

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Originally Posted by AtlantaTaxExpert

Mike:

Download a copy of IRS Pub 1542 from www.irs.gov; it contains the federal per diem rates.

You can claim either the standard per diem for each locale in question, or use the HIGH-LOW rate if you can substantiate that you paid the higher rate for lodging and meals.

The beauty of claiming the standard per diem is that the IRS accepts such claims at face value, with NO REQUIREMENT for receipts to prove the claim.

Hence, if you can show that you were in VA or LA on a specific date (that's where the CC statement comes in handy), then you can claim the federally-accepted standard for Meals and Incidental Expenses (M&IE) rate for that locale with NO NEED for any receipts for these expenses! I believe the standard country-wide rate for M&IE is $42.

That will allow you to claim at least SOME of the cash expenditures.

I KNOW the process works and is accepted by the IRS, because I represented a client (a long-haul trucker) at an IRS audit and justified his daily expenses using the M&IE rates cited in IRS Pub 1542.

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Thank you again for the nice explanation.

Few questions arising due to your latest comment:
1. Can per diem be claimed now on year 2005 taxes? My employer does not have any accountable plan as such so my W2 shows my total salary before expenses (expenses I take care on my own). Is it still possible to substantiate the claims based on this fact by per diem method?

2. Does M&IE include other expenses like cost of a notebook being used for business, phone call charges, flight, hotel rental and gasoline expenses? Or they need to be itemized separately to the M&IE e.g: in a month I was on business for say 20 days, so my expenses will be $42*20 = $840 (M&IE) + expenses for the call I made and so on and so forth.

1. Not sure but yes, you can substantiate your claims by per diem method. Reason being if someone gets mileage reimbursement under accountable plan, and the reimbursement is less than the standard mileage rate, then he/she can claim the difference.
2. Yes, cost of notebook, business phone calls, flights, hotel rental (if you stay overnite) and mileage are deductible. But commuting mileage are not deductible, which is from your home to office and office to home.

1) Yes, the per diem method is a tried and true method that I have used for decades.

2) When you claim M&IE, the IE covers the notebook and phone charges.

The hotel rental is covered the lodging portion of the per diem rate, which is SEPARATE from M&IE.

Flight costs are a separate cost entirely, as are mileage costs. They are NOT covered by the per diem rates at all.

Also, MukatA is right about the commuting costs; they are NEVER deductible.