Section 162(a)Why it’s necessary to maintain travel logs

The tax law generally allows you to deduct travel expenses incurred while you are away from home on legitimate business matters. In a new case, Maki, TC Summary Opinion 2019-34, 11/4/19, the Tax Court approved deductions for long-distance travel by the taxpayer to tend to his timberland, despite the loss of some records.

Here are the key facts of the case: The taxpayer, a resident of Washington, had inherited more than 100 acres of land. The land was located in two counties and the taxpayer traveled every week to take care of and monitor timber on the land. Each round-trip was about 300 miles, a considerable distance. The inherited land was valuable because of the timber situated on it.

The taxpayer has continuously experienced physical problems and needs to walk and stay active. One way he has accomplished this, as well as providing for his future, was to plant trees and care for them so that they could be harvested in the future. The taxpayer began this process during the 1980s after he inherited the land from his mother. At the time of trial, the trees were approaching maturity and two of the properties had trees with a harvest value of over $1 million.

Commercial timber companies usually hire people to regularly check and patrol their timberland to curb or thwart illegal harvesting. Because he could not afford the cost of hiring people to check and patrol the land, the taxpayer regularly visited the timber properties to make sure he didn’t lose value because of illegal harvesting or other types of damage. During these visits, he also planted trees and monitored his properties for any other activity, including the posting of signs on trees which might signify improper intended use of his trees.

The taxpayer maintained a log listing the days he visited and stayed on the properties. This log, along with other records, was maintained in the building he used when visiting the properties. After he prepared a summary, the original contemporaneous logs and the other records were stolen when the building was vandalized.

The summary shows that the taxpayer was present at the timber properties a total of 161 days during 2013. It also reflects 47 round-trips from the taxpayer’s residence to the timber properties. Some of the visits were as short as one day, but most were three-day visits.

The IRS didn’t contest whether the travel expenses were ordinary or necessary business expenses or if they were incurred while the taxpayer was away from his tax home. Rather, they contend that the taxpayer has not adequately substantiated the expenditures. Ultimately, the Tax Court sided with the taxpayer.

Here’s why: The taxpayer established a normal pattern of travel, usually three days each week, and that pattern rarely varied. He always traveled to the same locations. His testimony that he maintained a log is credible, and his summary, received in evidence, was extracted from the log he maintained. In any event, the repetitive pattern of travel would be easily verified because it was essentially the same each week. Accordingly, a deduction is allowed.

However, the Tax Court did modify the deduction amount claimed for meals and incidental expenses because the taxpayer used a per diem method authorized only for luxury water travel on cruise ships. It relied instead on per diem rates for regular business travel.

The upshot: The IRS frequently challenges deductions for travel expenses due to inadequate recordkeeping. Make sure that your clients adhere to the rules.