1976, February, Pg. 188. Tax Tips.

5 Colo.Law. 188

Colorado Lawyer

1976.

1976, February, Pg. 188.

Tax Tips

188Tax TipsProving Those Entertainment and Travel Expenses

Lawyers often advise their clients that, to successfully defend a tax audit, they must have kept good tax records. Nowhere is this more important than in the area of entertainment and travel expenses. This article focuses on how to substantiate those expenses.

Records Required

Internal Revenue Code § 274(d) provides that no deduction shall be allowed for any travel expenses or for entertainment expenses unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating his own statement (1) the amount of such expense or other item; (2) the time and place of the travel and entertainment; (3) the business purpose of the expenditure; and (4) the business relationship to the taxpayer of persons entertained. In general, a taxpayer must substantiate each element of his expenditure by adequate records or by sufficient evidence corroborating his own statements. Reg. 1.274-5(c). A higher degree of credibility will be given to those records which are recorded contemporaneously with the occurrence of the expenditures or shortly thereafter.

To meet the adequate records requirements of § 274(d), a taxpayer should maintain an account book, diary, statement of expense, or similar record and documentary evidence which, in combination, are sufficient to establish each element of an expenditure. Reg. 1.274-5(c)(2). Treasury Regulation 1.274-5(c)(2)(iii) requires documentary evidence, such as receipts, paid bills, or similar evidence for any expenditure for lodging or traveling away from home and any other expenditure of $25 or more, except that in the case of transportation charges, documentary evidence will not be required if not readily available.

It is not necessary to record information in an account book, diary, statement of expense, or similar record which duplicates information reflected on a receipt so long as the account book and receipt complement each other in an orderly manner. Ordinarily documentary evidence will be considered adequate if it includes sufficient information to establish the amount, date, place, and essential character of the expenditure. Thus, a hotel receipt is sufficient if it contains the name, location, date, and separate amounts for charges such as for lodging, meals, and telephone. Likewise, a restaurant receipt is sufficient if it contains the name and location of the restaurant, the date and the amount of the expenditure, and, if a charge is made for an item other than meals and beverages, an indication

189that such is the case...