Cell Phone Deductions and Other Listed Property

Most professionals report business deductions for use of their automobiles, lap-top computers and cell phones. Often, the deductions are based on estimates rather than actual usage logs. For normal business expenses, approximations are acceptable if taxpayers have reasonable collateral evidence and the expenses are ordinary and necessary. For property that could also be used for personal purposes (defined as listed property in Sec. 280F(d)(4)), the use of estimates for documenting business use is unacceptable. Unfortunately, automobiles, lap-top computers and cell phones are all listed property.

To claim a business deduction for listed property, taxpayers must follow the Sec. 274(d) substantiation rules. They must be able to substantiate the amount of the expenditure or use, the time and place of the expenditure or use and its business purpose. Under Temp. Regs. Sec. 1.274-5T(c), taxpayers can substantiate an expenditure or use with a written log or a sampling supported by collateral evidence. For example, a taxpayer could keep a log to determine business use of his automobile for the first 90 days of the year and then use that percentage for the entire year. For a cell phone, a taxpayer could note, using his phone bill, the time, amount and place of calls for the first week of every month, calculate the business use and apply that percentage for the entire year. Without this documentation, the IRS may deny a taxpayer's business deductions for listed property, as was the case in Fabian Vaskman, TC Memo 2001-165, and Kevin R. Johnston, TC Memo 2000-315. Umit Tarakci, TC Memo 2000-358, is an example of a case in which deductions for cell phone use were substantiated properly.

From Kathy Dreier, Vonlehman & Company, Inc., Fort Mitchell, KY