The Internal Revenue Service allows as a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including traveling expenses while away from home[i]. Since the average OTR truck driver is away from home 250 nights a year and accumulates hundreds of receipts, it is tempting to inflate tax deductible travel and business expenses to minimize taxes.
Billy was a self-employed truck driver subject to DOT hours of service regulations who was entitled to claim meals per diem and other business expenses as a tax deduction[ii]. However, for the tax year under audit he also claimed hometown meals and provided the IRS with a novel defense.
U.S. Tax Court inquiry[iii]:
With respect to the hometown meals, Billy provided receipts to show that he paid $1,765.34 for restaurant meals in between work assignments[iv]. He contended that although his employers did not require the meals, the meals had a business purpose in that they gave him an opportunity to meet with other drivers to gain their wisdom as to how best to advance his driving skills, e.g., learning safety tips, the rules for hours worked, and how to increase his earnings. Billy wrote on the backs of the receipts the first but not last names of the person(s) with whom he ate. He did not record or clearly state the business purpose of the meals. Included in the total were payments of $225 and $200 to purchase meals for several other drivers as appreciation for their advice. Billy also claimed business expenses for his home office, but provided receipts that only showed a dollar amount and cryptic descriptions:
- Luggage RO EAC Driver
- Most expenses were personal
- Nike sneakers
- Executive chair
The U.S. Tax Court was not persuaded and ruled:
- Trucker was not entitled to $1,765 for hometown meals, and
- Only half or $1,164 of business expenses.
As this case demonstrates novel theories for tax deductible items will not survive scrutiny in a tax audit. The unique nature of the trucking industry compels drivers to exercise due diligence when assembling tax records and reviewing the tax return lest you end up like Billy.
This article was written by Mark W. Sullivan, EA, Tax Counsel for Per Diem Plus, who has been providing taxpayer advocacy, consulting, and litigation services since 1998. Prior to starting a private practice, Mr. Sullivan was an Internal Revenue Officer with the New York, NY, Saint Louis, MO and Washington, D.C. offices of the Internal Revenue Service. He has over a decade of experience advising transportation industry clients with respect to per diem issues.
Please remember that everyone’s financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult your own tax or accounting professional.
Per Diem Plus, LLC Copyright 2018
[i] IRC Section 162 (a)(2)
[ii] IRS Rev. Proc. 2011-47 (most recently superseded by 2017-42) & IRC 162(a)(2); Reg 1.162(2) A tax deduction is allowed for ordinary and necessary traveling expenses incurred by a taxpayer while away from home in the conduct of a trade or business.
[iii] Excerpted from HATEM ELSAYED, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 8935-07S. Filed May 26, 2009
[iv] Under IRC 274(d) no deduction shall be allowed for travel expenses unless the taxpayer is away from home and substantiates by adequate records or by sufficient evidence corroborating the taxpayer’s own statement
(A) the amount of such expense or other item,
(B) the time and place of the travel
(C) the business purpose of the expense, and
(D) the business relationship to the taxpayer of the person receiving the benefit.