Discussion:Qualified nonpersonal use vehicle - would you appeal?
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Discussion Forum Index --> Tax Questions --> Qualified nonpersonal use vehicle - would you appeal?
| 20 December 2008 | |
| Under exam, Tax Compliance Officer has significantly adjusted taxpayer's car and truck expenses (by more than $10,000) stating, in reply to the contention that a work van was a qualified non-personal use vehicle under Sec. 274(i) and Reg. 1.274-5T(k)(7) that "legislative history to section 274(i) provided a list of qualified nonpersonal use vehicles and identified a number of examples of qualified nonpersonal use vehicles such as school buses, qualified specialized utility repair trucks, and qualified moving vans. Because the vehicle used in your business was designed, manufactured, marketed and sold to individuals for personal purposes, the fact that you used it in your business does not convert it to a qualified nonpersonal use vehicle."
TP is a specialty subcontractor, and the full-size van had no back seats (see Reg. 1.274-5T(k)(7), only an area for hauling supplies and materials. However, TP does not have any mileage logs or documentation, nothing even showing odometer readings because he did all his own maintenance on the van. The TCO seems to be taking the position that only commercial vehicles, e.g. - FedEx delivery trucks, can be qualified nonpersonal use vehicles. Do you think this is true? Would you take this to an appeals officer? | |
| 20 December 2008 | |
| "...the fact that you used it in your business does not convert it to a qualified nonpersonal use vehicle."
If that is factual, I would agree with the TCO. On the other hand, if the van was modified to meet §1.274-5(k)(7) then §274(i) seems to fit as a qualified non-personal use vehicle. Is not the real hang up the lack of records or does he have some sort of an appointment book or dated billed invoices? | |
Death&Taxes (talk|edits) said: | 20 December 2008 |
| Solomon hits it on the head.....lack of record keeping is going to lead to some kind of disallowance. Is the auditor accepting the percentage and the expenses? Or hasn't he come to that?
It would have been nice had it been fitted with racks or the like. | |
| 20 December 2008 | |
| You did not mention what kind of subcontractor, but if in the buildings trades, he probably has the van full of tools, compressors and other items. Take a picture of the van showing it would not likely be used for personal use. | |
| 20 December 2008 | |
| 1) Part of the problem is the van generaly fits the 274 regs in that it has no back seat but, for instance, does not have racks installed; however, I'm not convinced that is an actual requirement for a vehicle to meet the de minimis personal use aspect of 274(i).
2) Yes, the real hang up is the lack of records. The TP has only dated invoices submitted to the contractor on each job but these do not show the location of all the jobs, and there is not quite enough documentation to fully substantiate the total mileage claimed; however, if it is a qualified nonpersonal use vehicle under 274(i) then that documentation is not required. 3) TCO is not accepting the mileage as shown on the t/r and has proposed a figure of 12,500 for the year as "reasonable" vs. approx. 36,000 miles on the original t/r as filed, which the TP calculated based on van's annual odometer readings (but does not have documentation for since TP did all maintenance on the vehicle and has explored many possibilities for documentation including motor vehicle licensing records). 4) The TP is in the building trades and did present photos of the van showing its condition and the rear filled with tools and materials. So to me this is a very close call. I think the lack of documentation has led the TCO (and manager) to take a very conservative, literal reading of 274(i) in order to disallow the mileage. | |
Death&Taxes (talk|edits) said: | 20 December 2008 |
| They are going to hang their hat on the phrase "unless the truck or van has been specially modified" especially the word 'especially' and you will keep pointing out the photo of the van filled with tools. I would presume your position also hangs on the fact that the van had no back seat. Perhaps you have to go back to the invoice and the dealer to see if it was taken out when he bought it, though I suspect he did the work. Or did he buy it used and do the work? Or buy it 'as is?'
Taken literally, throwing tools in the back of the van might not get it. And having seen a client 'jimmy' an odometer in an earlier case, even showing the odometer today might not prove much. Only way to prove the mileage is getting his contractors to provide lists of jobs worked on, so that mileage can be reconstructed. I suppose he paid his gas charges in cash, too, else you might use his credit card statements to show the amount spent on fuel and work backwards to come up with mileage. So at this point, it probably gets down to a game of 'you want to give him 12,500 and I believe his 36,000 is accurate because this is the area where he works [giving him a map with a circle drawn on it].' You have to right to represent him in Appeals, where they must consider the change that this could end up in court on the question of type of vehicle and then consider the risks of litigation. So run some numbers to see what splitting the difference is worth to your client and if amenable, give it a try. | |
| 20 December 2008 | |
| Thanks, D&T, that's exactly where we are. He bought the vehicle used but I don't know if it had a back seat then or not; we're working on getting invoices from lead contractor with addresses to see if we can recreate a representative period of mileage; gas was purchased with a combination of cash and debit cards so documented purchases didn't come close to substantiating total miles.
TCO's contention is that TP couldn't have driven that many miles and done his work; so TCO is standing on a reasonableness / ordinary & necessary argument. So we're continuing with the negotiation on the number. Thanks. | |
