IRS Yields to Protests, Eases Rules on Records for Business Vehicles

The Internal Revenue Service, responding as it said it would to a wave of protests, on Friday relaxed controversial new record-keeping rules for claiming tax deductions for cars and trucks used in business.

Beginning Tuesday, taxpayers will be allowed to keep general records listing their mileage at the end of a trip or at the end of a day of short trips. By contrast, the previous rules required a log or diary entry for every trip, no matter how brief.

Congress voted last year to toughen the record-keeping rules, but the new regulations that went into effect Jan. 1 generated a deluge of complaints. Angry farmers and businessmen predicted a nightmare of paper work, with farmers scribbling down mileage after each visit to their fields or salesmen making a separate notation for each stop on a delivery route.

On Capitol Hill, legislation to repeal the tougher rules was offered by a majority of House members and by 44 senators. In an effort to staunch the protests and avoid congressional action, the IRS announced Jan. 25 that it would relax the rules.

However, some members of Congress have indicated that they will be satisfied with nothing short of complete repeal.

The new records must be maintained in a “contemporaneous” manner, according to the IRS.

One Entry at End of Day

For example, a driver might make several deliveries in the morning, go back to the office, stop for lunch and make several more stops in the afternoon. One entry at the end of the day, noting the elapsed mileage, now would be an acceptable record, IRS officials said.

In another case, they said, a salesman on a two-day trip could write down mileage when he returns from the trip.

Only one entry in a log will be required for a round trip or other time of “uninterrupted use,” the IRS said. A halt for a meal in a day filled with stops for business deliveries will not be considered an interruption--the taxpayer can list the full day’s mileage as a business activity.

The tax deduction for business use is 20.5 cents a mile for the first 15,000 work-related business miles driven during a year and 11 cents a mile for all additional business mileage.

A taxpayer must keep a log, separating business from personal use, in order to use the cents-per-mile deduction. Commuting is not considered business usage.

As an alternative, the taxpayer can skip mileage calculations and use a formula limiting the business deduction.

The government will accept a claim that up to 80% of a truck’s or van’s mileage is accumulated during business use. For cars, the claim can be a maximum of 70%.

The taxpayer may simply add up all the expenses for the year--depreciation, gasoline, repairs--and apply the formula.

Business Vehicles Exempt

For example, suppose the total cost of running a car used both for business and personal driving is $1,200 a year. The taxpayer can claim 70%, or $840 of the yearly operating cost, as a deduction.

No record keeping is required for company cars and trucks used exclusively for business if the vehicles are kept at the company site when not being driven. The business must enforce a policy banning personal use of the vehicles, however.

In this situation, no logs are needed because it is assumed that all costs are business-related and therefore deductible.

But a different rule applies to a taxpayer whose employer requires the use of company vehicles for commuting purposes. Some police departments, for example, require officers to take their patrol cars home at night, just as some construction firms may require workers to take expensive machines home rather than leave the equipment at an open construction site.

If the police officers or construction personnel make no personal use of the vehicles other than for commuting, record keeping is unnecessary. However, the value of commuting, estimated at $3 a day by the government, is considered taxable income for the worker and must be reported to the IRS.

For the relatively small number of taxpayers who use personal computers for business at home, the IRS offered no relief. They will still be required to keep the more detailed logs each time they use their computers for business purposes.