Publication 946 |
2000 Tax Year |
What Records Must Be Kept
Words you may need to know (see Glossary):
- Business/investment use
- Circumstantial evidence
- Documentary evidence
You cannot take any depreciation or section 179 deduction for the
use of listed property (including passenger automobiles) unless you
can prove your business/investment use with adequate records or with
sufficient evidence to support your own statements. The period of time
you must keep these records is discussed later under How Long To
Keep Records.
Adequate Records
To meet the adequate records requirement, you must maintain an
account book, diary, log, statement of expense, trip sheet, or similar
record or other documentary evidence that, together with the receipt,
is sufficient to establish each element of an expenditure or use. You
do not have to record information in an account book, diary, or
similar record if the information is already shown on the receipt.
However, your records should back up your receipts in an orderly
manner.
Elements of Expenditure or Use
Your records or other documentary evidence must support all the
following.
- The amount of each separate expenditure, such as the cost of
acquiring the item, maintenance and repair costs, capital improvement
costs, lease payments, and any other expenses.
- The amount of each business and investment use (based on an
appropriate measure, such as mileage for vehicles and time for other
listed property), and the total use of the property for the tax year.
- The date of the expenditure or use.
- The business or investment purpose for the expenditure or
use.
Written documents of your expenditure or use are generally better
evidence than oral statements alone. A written record you prepare at
or near the time of the expenditure or use has greater value as proof
of the expenditure or use. You do not have to keep a daily log.
However, some type of record containing the elements of an expenditure
or the business or investment use of listed property made at or near
the time and backed up by other documents is preferable to a statement
you prepare later.
Timeliness
You must record the elements of an expenditure or use at the time
you have full knowledge of the elements. An expense account statement
made from an account book, diary, or similar record prepared or
maintained at or near the time of the expenditure or use is generally
considered a timely record if in the regular course of business:
- The statement is given by an employee to the employer,
or
- The statement is given by an independent contractor to the
client or customer.
For example, a log maintained on a weekly basis, which accounts for
use during the week, will be considered a record made at or near the
time of use.
Business Purpose Supported
Generally, an adequate record of business purpose must be in the
form of a written statement. However, the amount of backup necessary
to establish a business purpose depends on the facts and circumstances
of each case. A written explanation of the business purpose will not
be required if the purpose can be determined from the surrounding
facts and circumstances. For example, a salesperson visiting customers
on an established sales route will not normally need a written
explanation of the business purpose of his or her travel.
Business Use Supported
An adequate record contains enough information on each element of
every business or investment use. The amount of detail required to
support the use depends on the facts and circumstances. For example, a
taxpayer whose only business use of a truck is to make customer
deliveries on an established route can satisfy the requirement by
recording the length of the route, including the total number of miles
driven during the tax year and the date of each trip at or near the
time of the trips.
Although you generally must prepare an adequate written record, you
can prepare a record of the business use of listed property using a
computer memory device that uses a logging program.
Separate or Combined
Expenditures or Uses
Each use by you is normally considered a separate use. However, you
can combine repeated uses as a single item.
Record each expenditure as a separate item. Do not combine it with
other expenditures. If you choose, however, you can combine amounts
you spent for the use of listed property during a tax year, such as
for gasoline or automobile repairs. If you combine these expenses, you
do not need to support the business purpose of each expense. Instead,
you can divide the expenses based on the total business use of the
listed property.
You can account for uses which can be considered part of a single
use, such as a round trip or uninterrupted business use, by a single
record. For example, you can account for the use of a truck to make
deliveries at several locations that begin and end at the business
premises and can include a stop at the business in between deliveries
by a single record of miles driven. You can account for the use of a
passenger automobile by a salesperson for a business trip away from
home over a period of time by a single record of miles traveled.
Minimal personal use (such as a stop for lunch between two business
stops) is not an interruption of business use.
Confidential Information
If any of the information on the elements of an expenditure or use
is confidential, you do not need to include it in the account book or
similar record if you record it at or near the time of the expenditure
or use. You must keep it elsewhere and make it available as support to
the IRS director for your area on request.
Substantial Compliance
If you have not fully supported a particular element of an
expenditure or use, but have complied with the adequate records
requirement for the expenditure or use to the satisfaction of the IRS
director for your area, you can establish this element by any evidence
the IRS director for your area deems adequate.
If you fail to establish to the satisfaction of the IRS director
for your area that you have substantially complied with the adequate
records requirement for an element of an expenditure or use, you must
establish the element as follows.
- By your own oral or written statement containing detailed information as to the element.
- By other evidence sufficient to establish the element.
If the element is the cost or amount, time, place, or date of an
expenditure or use, its supporting evidence must be direct, such as
oral testimony by witnesses or a written statement setting forth
detailed information about the element or the documentary evidence. If
the element is the business purpose of an expenditure, its supporting
evidence can be circumstantial evidence.
Sampling
You can maintain an adequate record for portions of a tax year and
use that record to support your business and investment use for the
entire tax year if it can be shown by other evidence that the periods
for which you maintain an adequate record are representative of use
throughout the year.
Example 1.
Denise Williams, a sole proprietor and calendar year taxpayer,
operates an interior decorating business out of her home. She uses her
automobile for local business visits to the homes or offices of
clients, for meetings with suppliers and subcontractors, and to pick
up and deliver items to clients. There is no other business use of the
automobile, but she and family members also use it for personal
purposes. She maintains adequate records for the first three months of
the year showing that 75% of the automobile use was for business.
Subcontractor invoices and paid bills show that her business continued
at approximately the same rate for the rest of the year. If there is
no change in circumstances, such as the purchase of a second car for
exclusive use in her business, the determination that her combined
business/investment use of the automobile for the tax year is 75%
rests on sufficient supporting evidence.
Example 2.
Assume the same facts as in Example 1 except that Denise maintains
adequate records during the first week of every month showing that 75%
of her use of the automobile is for business. Her business invoices
show that her business continued at the same rate during the later
weeks of each month so that her weekly records are representative of
the automobile's business use throughout the month. The determination
that her business/investment use of the automobile for the tax year is
75% rests on sufficient supporting evidence.
Example 3.
Bill Baker, a sole proprietor and calendar year taxpayer, is a
salesman in a large metropolitan area for a company that manufactures
household products. For the first three weeks of each month, he
occasionally uses his own automobile for business travel within the
metropolitan area. During these weeks, his business use of the
automobile does not follow a consistent pattern. During the fourth
week of each month, he delivers all business orders taken during the
previous month. The business use of his automobile, as supported by
adequate records, is 70% of its total use during that fourth week. The
determination based on the record maintained during the fourth week of
the month that his business/investment use of the automobile for the
tax year is 70% does not rest on sufficient supporting evidence
because his use during that week is not representative of use during
other periods.
Loss of Records
When you establish that failure to produce adequate records is due
to loss of the records through circumstances beyond your control, such
as through fire, flood, earthquake, or other casualty, you have the
right to support a deduction by reasonable reconstruction of your
expenditures and use.
Reporting Information on Form 4562
If you claim a deduction for any listed property, you must provide
the requested information on page 2, Section A of Form 4562. If you
claim a deduction for any vehicle, you must provide information about
the vehicle use in Section B.
Employees.
Employees claiming actual expenses (including depreciation) or the
standard mileage rate must use either Form 2106 or Form 2106-EZ
instead of Part V of Form 4562.
Employer who provides vehicles to employees.
An employer who provides vehicles to employees must obtain enough
information from those employees to provide the requested information
on page 2, Section C of Form 4562.
An employer who provides more than five vehicles to employees does
not need to include any information on his or her tax return. Instead,
the employer must obtain the information from his or her employees and
indicate on his or her return that the requested information was
obtained and is being retained.
You do not need to provide the information requested on page 2 of
Form 4562 if, as an employer, you satisfy the following requirements.
- You can satisfy the requirements of a written policy
statement for vehicles either not used for personal purposes, or not
used for personal purposes other than commuting.
- You treat all vehicle use by employees as personal use.
See the instructions for Form 4562.
How Long To Keep Records
For listed property, you must keep records for as long as any
excess depreciation can be recaptured (included in income).
Recapture can occur in any tax year of the recovery period.
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