In Elsayed v. Commissioner, T.C. Summary Opinion 2009-81, the U.S. Tax Court reviewed meal and unreimbursed expenses incurred by a truck driver. This case shows the difficulties truck drivers have in capturing and substantiating their expenses for tax purposes.
Facts & Procedural History
Elsayed was employed as a truck driver for Swift Transportation and A-Z Transportation in 2003 and 2004.
Elsayed maintained a home in Texas, but he was an active driver during 2004 logging 268 days away from home.
Swift and A-Z reimbursed Elsayed for certain expenses including tolls, scales, showers, truck supplies, truck washes, motels, lumpers (people hired to help unload the truck), and truck repairs.
Swift and A-Z did not reimburse Elsayed for maps, tools, meals, clothing, bedding, coolers, batteries, office supplies, first aid kits, or air fresheners.
Elsayed kept receipts for his purchases in separate envelopes by category and used a home computer to help record his driver logs and account for his expenses.
The IRS conducted an audit on Elsayed’s Form 1040, Individual Income Tax Return, for 2004.
The IRS disallowed deductions taken for meals and unreimbursed supplies.
Meal Expenses While Away From Home
Elsayed deducted expenses for meals while he was away from home working as a truck driver. Elsayed determined the amount of the deductible meals by adding up amounts listed on receipts that he kept.
The IRS agent allowed Elsayed a fixed $31 per diem rate for the 268 days that Elsayed was away from his home. This $31 per diem rate is set out in Rev. Proc. 2003-80.
The The court followed the IRS’s method, but did not agree with the per diem rate the IRS used. The court noted that Rev. Proc. 2003-80 provides an increased $41 per diem rate for employees in the transportation industry–which includes truck drivers.
The IRS agent had also limited the deductible amount of the meals expense by fifty percent, given the rule in Section 274(n). The court agreed that the expense should be limited, but noted that Section 274(n)(3)(B) provides a more generous seventy percent allowance for individuals subject to “the hours of service limitations of the Department of Transportation.” Truck drivers like Elsayed meet this requirement as the Department of Transportation limits the hours and times that truck drivers can operate their trucks.
Meal Expenses While at Home
Elsayed also deducted expenses for meals while he was not away from his home and working as a truck driver.
The court made the following observations about these expenses:
his employers did not require the meals, the meals had a business purpose in that they gave him an opportunity to meet with other drivers to gain their wisdom as to how best to advance his driving skills, e.g., learning safety tips, the rules for hours worked, and how to increase his earnings. Petitioner wrote on the backs of the receipts the first but not last names of the person(s) with whom he ate. He did not record the business purpose of the meals. Included in the total were payments of $225 and $200 to purchase meals for several other drivers as appreciation for their advice.
The court concluded that these expenses were not deductible, as they were personal expenses and were not “directly connected” to his trade or business of being a truck driver. This is the general rule. Personal expenses are not deductible for tax purposes. Expenses that are not directly connected to a trade or business are also not deductible. Thus, the court did not allow Elsayed to deduct these expenses.
Elsayed also deducted a number of expenses for supplies that he used in his trade or business of being a truck driver.
The court made the following observations about these supply expenses:
many of the receipts just showed dollar amounts with a cryptic description, e.g., a credit card purchase for $26.97 for “Luggage Ro EAC” from an unidentified store, and $43.29 for “G-R-O-C” from the Drivers Travel Mart in Anna, Texas. Many other receipts had no description at all, such as a $323.83 credit card receipt from Wal Mart in Houston, Texas; $23.46 from the Flying J Travel Plaza in Carmel Church, Virginia; and $13.65 from Travel Centers of America in Tallulah, Louisiana. A few receipts had an apparent business purpose: $75.73 for a CB radio, $59.95 for an atlas map, and $5.76 for a small map. However, most of the other identifiable purchases were for seemingly personal purposes: $115.26 from a Wal Mart in Humble, Texas, for shampoo and office supplies; and $99.86, $188.84, and $19.99 from a Sam’s Club for an executive chair, an L-shaped desk, and Nike tennis sneakers.
The court concluded that these descriptions were not sufficient as Elsayed did not provide adequate substantiation establishing a business purpose for the expenses under Section 274(d). Section 274(d) provides a higher substantiation for these types of expenses. Thus, the court did not allow Elsayed to deduct these expenses.