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With respect to certain business expenses specified in
section 274(d), however, more stringent substantiation
requirements apply. Section 274(d) disallows deductions for
traveling expenses, gifts, and meals and entertainment, as well
as for listed property, unless the taxpayer substantiates by
adequate records or by sufficient evidence corroborating the
taxpayer's own statement: (1) The amount of the expenses; (2)
the time and place of the expense; (3) the business purpose of
the expense; and, (4) the business relationship to the taxpayer
of the persons involved in the expense. The term "listed
property" is defined in section 280(F)(d) and includes passenger
vehicles, cellular phones, and other similar telecommunications
equipment, such as pagers. See sec. 280F(d)(4)(i),(v).
The substantiation requirements of section 274(d) are
designed to encourage taxpayers to maintain records, together
with documentary evidence substantiating each element of the
expense sought to be deducted. Sec. 1.274-5T(c)(1), Temporary
Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).
1. Employee Business Expenses
a. Vehicle Expenses
Petitioners claimed deductions for their vehicle expenses as
unreimbursed employee business expenses. The prerequisites to
deductibility of vehicle expenses incurred by an employee are,
first, that the expenses be nonreimbursable outlays, and, second,
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Last modified: May 25, 2011