To deduct mileage expenses from your business taxes, your organization must keep a log of any business driving activities. Per the IRS, these logs must include the mileage for each trip, the date of each trip, the starting and ending locations, and the excursion’s business purpose. Besides the important detail that these records prove tax deductions, keeping detailed, verifiable mileage logs also helps prevent fraud inside your company, so you should take their accuracy and legitimacy very seriously. How seriously, you ask? Two recent court cases show why you should never slack on mileage documentation.
Case One: Tax Court Doesn’t Buy Taxpayer’s Botched Mileage Logs
In the first case, a taxpayer reported income and expenses from two business activities for 2015 and 2016. The first involved consulting in the electronic healthcare (EHC) field, while the other involved residential construction. In his EHC business, the taxpayer visited clients and potential clients, such as clinics and doctors’ offices, to help them assess system requirements for participating in the EHC program. For his construction business, this taxpayer allegedly performed construction, handyman, and residential rehabilitation jobs for individual clients.
To support deductions for his vehicle expenses, the taxpayer submitted calendars for the first half of 2015, and all of 2016, with annotations showing locations he purportedly visited in connection with his businesses. However, because the taxpayer had created the calendars solely for use in the IRS examination, none of the entries were made contemporaneously with his reported travel.
The taxpayer also failed to supply evidence connecting locations noted on the calendars to clients’ addresses. The calendars contained several duplicate entries, as well, with the taxpayer asserting that he had visited the same addresses on the same days in January of 2015 and 2016.
In another mark against him, the taxpayer also submitted alleged odometer readings, which were also prepared during the IRS examination and not recorded contemporaneously. When asked how he kept track of readings for thousands of trips, the taxpayer said that he’d jotted them down on scraps of paper, which had since been discarded. The descriptions of the business purpose for the trips were all the same, vaguely referencing “business meetings”.
The deductions were, ultimately, denied by the Tax Court.
Case Two: Years Long Fraud Scheme Results in Jail Time
In another recent tax-related case, a Missouri woman was sentenced last year in federal court for fraudulently claiming reimbursements for travel expenses for her work for the United States Postal Service. This woman was employed by the USPS from 2010 through 2019, and her scheme began almost immediately once she was promoted to the position of engagement ambassador, a position that had her traveling frequently throughout the U.S.
She later admitted that she received reimbursements for fraudulent travel expenses by submitting false reimbursement requests in which she claimed higher hotel rates than what she was actually charged, that she stayed in corporate housing that she had not used, and for driving mileage in her personal vehicle that was never actually traveled. She also used Postal Service travel vouchers to pay for family members’ travel expenses and personal rent. According to court documents, in just over a year, she submitted approximately 36 fraudulent travel vouchers.
In May of 2022, she was sentenced to one year and three months in prison without parole, and ordered to pay almost $30,000 in restitution to the USPS.
SureMileage Automates Mileage Logs and Eliminates Fraud
The IRS takes eliminating fraud very seriously. As inconvenient as it might sometimes seem, providing adequate and thorough documentation for your business helps reduce the chances of fraud significantly and ensures you actually qualify for the deductions you’re claiming. Fortunately, keeping accurate and contemporaneous mileage logs no longer needs to be a time-consuming, tedious activity.
Instead of relying on records of odometer readings, CompanyMileage’s innovative mileage tracking software, SureMileage, uses a point-to-point calculation method. Employees simply report their starting point and destination, and the system calculates the mileage to be reimbursed. This method collects all data contemporaneously, saves employees time when submitting trips for reimbursement, automates the approval workflow to avoid system backups and bottlenecks, and can even integrate with your company’s existing payroll system.
By all but eliminating instances of fraud and mileage padding, CompanyMileage has helped our customers save up to 30% on mileage-related expenses—plus, using our software releases you from the worry of the IRS coming after you for improper mileage logs. Request a demo today to learn more!