IRS Fines and Penalties for Insufficient Mileage Documentation – Explained

March 18, 2021

In our experience the following types are common among Taxpayers:

We often find that these Taxpayers have completely neglected or underestimated the task of creating Mileage logs because they were unaware of the consequences of not having sufficient supporting documentation.

Have you heard about NOTICE 2007-54 of the IRS?

An IRS Notice called the  Preparer Penalty Provisions Under the Small Business and Work Opportunity Act was issued back in 2007. The act was initiated to increase the penalties regarding tax returns submitted with insufficient supporting documentation.

The Act increased the first-tier section 6694(a) penalty for understatements from $250 to the greater of $1000 or 50% of the income derived (or to be derived) by the tax return preparer from the preparation of a return or claim with respect to which the penalty was imposed. The Act increased the second-tier section 6694(b) penalty for willful or reckless conduct from $1000 to the greater of $5,000 or 50% of the income derived (or to be derived) by the tax return preparer.

In the case of a Business Mileage Tax Deduction, sufficient documentation equals Mileage logs. Understating the liability of claiming the deduction would mean not having Mileage logs to sufficiently support the Business Mileage Deduction Claim.

Guy without a mileage log

The IRS states clearly that you must keep “an account book, diary, log,  trip sheets, or similar record”  (IRS p463.pdf, Page 24 Chapter 5) in order to take the Business Mileage Reimbursement Tax Deduction on your taxes.

Luckily, the penalty under section 6694(a) would not be imposed if it is shown that there is reasonable cause for the understatement and the tax return preparer acted in good faith.

If you receive a 30 Day Audit letter from the IRS that means you have a month to reconstruct your mileage and prove that the deduction was claimed based on real-life vehicle-use.

No need to panic!

With MileageWise you can make up for forgotten Mileage logs, with the AdWise Wizard feature and by checking and correcting 70 logical conflicts your recommended logs will be good to go and IRS-Proof, meeting Every Expectation.

After reconstructing your past Mileage logs, you can continue tracking your trips with MileageWise. Just as you would do it with any Mileage tracker. MileageWise can detect your trips automatically as well, but without using up your data and battery. When you arrive at a destination the App offers you a Client and the Purpose of the Trip from an already existing database. You can always add new clients to your list, which will then be available for you to use automatically in the future.

If you already use a Mileage Tracker App, you can import your previously made Mileage logs to MileageWise and the Software will monitor 70 logical conflicts when making you a recommended log of your taste.

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And if there’s too much to do in too little time, busy professionals can take advantage of MileageWise’s additional Concierge service, where a MileageWise Expert will prepare an IRS-proof Mileage log draft for them. It’s the same as handing over managing your Mileage logs to your Accountant.

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About the blog

I have been blogging for my readers since 2005, primarily about mileage logs and related subjects: about our software development, customer service, and sales experience. I am happy to share my opinion in a humorous manner on the great things in life - if necessary with a firm stance on the subject -, sharing my own raw thoughts.

"I write original content. I'm not copying others."

Akos Barazsy
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