Dear Corporate Client,

On Thursday, October 8, 2009, I was at the IRS in Manhattan representing an individual tax client at an audit for Employee Business Expenses. I am writing you to explain to you how tough IRS is getting and what documentation IRS requires for all travel, entertainment and auto expenses.

The agent wanted to disallow all of the entertainment, travel, and auto expenses even though I had receipts with dates, and amounts, for every single expense. If everything was documented then why the proposed disallowances by IRS? The IRS is now focusing in on compliance which requires a log or diary for every entertainment, travel and auto expense. The log or diary must state the persons name(s) you met with, and the business purpose or reason for the expense.

The agent explained to me that I can appeal the decision to disallow the expenses, but she stated that she was confident she would win the appeal. The sad fact is that the IRS will disallow all entertainment, travel and auto expense unless the taxpayer has a contemporaneous log stating who they met with and the business purpose(s) of the trip.

I was able to successfully navigate thru this audit and in the end, the agent accepted all of the entertainment, travel and auto expenses: I was able to explain that the entertainment expenses were crew meetings with “Jose,” “Carmine,” and “John” and that the purposes were to coordinate services with the different subcontracting crew. I had some corroborating evidence to prove the travel expenses were a result of the taxpayer’s car in the auto repair shop which then required a rental car to travel to job sites, and I used my personality and skills to sell the auto expenses to the agent (I only claimed 43% auto use and had a letter from the employer).

In the end I was very lucky, and my client was even luckier, as the audit resulted in no additional tax due, but I fear going forward that the proper documentation will be required by you to substantiate your entertainment, travel and auto expenses.

Please purchase a log or diary (each year) and inscribe in it your appointments, as well as, the purpose(s) of your expenses and then SAVE THAT DIARY/LOG for 8 years!

Thank you,

Scott J. Faye & Associates, CPA PC