Paul Anthony Steward v. Comm., TCS 2024-3
This post is part of our series on recent important tax cases that may be of interest to accounting, tax, and finance professionals. For more like this, see our Federal Tax Update and California Federal Tax Update, which offer a comprehensive analysis of the year’s most pivotal tax developments.
Tile Contractor Unable to Shore Up Deductions Without Proper Substantiation (Christopher R. Pangelina v. Comm., TCM 2024-5)
In 2018 and 2019, Paul Anthony Steward was a performing musician. He claimed auto expenses for driving his car from his home to various venues where he performed with his band. He introduced an after-the-fact mileage log and documentation of royalties he collected for his performances. He claimed that many of his records were destroyed in a fire. The IRS had allowed a portion of the claimed auto expenses, and even more in a stipulation after trial. Mr. Steward also claimed $19,402 for travel to Japan. He was able to produce a travel expense report with trip dates and costs and brief descriptions of the purpose of the travel. He also produced receipts for flights and hotels. He described the trips as “market research” and noted various reasons for his trips which included visiting the “Sony Records office,” meeting to develop a music class, observing the culture, and discussing the use of blockchain in the music industry.
The Court noted that it could not use the Cohan rule to allow additional auto expenses beyond the amounts previously allowed by the IRS without the taxpayer’s records meeting the strict substantiation rules of §274(d). The expense report and receipts produced also did not meet the strict substantiation requirement under §274(d). The Court upheld the IRS’ disallowance of the deductions.