Disallowance of Expenses Due to Lack of Substantiation

Disallowance of Expenses Due to Lack of Substantiation

In a 2015 Tax Court case, Lussy, the Court denied a self-employed real estate appraiser’s business deductions for depreciation, interest, repairs, and certain other expenses due to a lack of substantiation.  The taxpayer did not maintain records of his expenses and could not prove they were ordinary and necessary expenditures paid or incurred for carrying on a trade or business.  The Court also denied the taxpayer’s travel expenses because of the absence of adequate records required under Sec. 274(d) to support each expense’s amount, time and place, and business purpose.

Unfortunately, Lussy found out that substantiating documentation for all reported deductions is just as important as the proper reporting of income.  If you have any questions regarding the substantiation of expenses to support your deductions, please let us know.  You may also consider reviewing the IRS website for additional details here.

Source:Lussy,T.C. Memo. 2015-35.TheTax Advisor