Some people apparently do not believe that laws pertaining to automobile use apply to them. They speed. They park in bus stops. They drive without insurance. And they regularly violate Section 274(d)(4) of the Internal Revenue Code.

"Section twozee four deeze whatsis?"

I thought you might say that. Let me explain.

Hard Nosed Rule, Hard Copy Preferred

Section 274(d)(4) and the related IRS regulations pertain to recordkeeping requirements for business automobile usage. Specifically, you must have written records of the mileage you used the car for business during that tax year in order to claim a deduction for automobile expense. No mileage record, no deduction.

And they ask right on the tax forms. They want to know the number of miles you are claiming for business and the total number of miles you drove that year. Immediately adjacent are two questions: "Do you have evidence to support your deduction?" and "If ‘yes,' is the evidence written?" Tick either box "No," and you will promptly receive a notice from them disallowing the deduction and assessing more tax.

The regulations refer to written records. However, those of you who do your recordkeeping on a computer or personal digital assistant are not required to go back to using a pencil and paper. Another section of federal law defines "written" to include computer-maintained records. That provision, however, is new enough that some of its implications have not yet been tested in Tax Court. A clean print-out that you made yesterday obviously has less credibility than a dirty, smeared log, but it can be corroborated with external evidence: gas purchases near your destination, Equity contracts, rehearsal schedules and so on.

What They Don't Tell You

The law and regulation do not stipulate the form or detail the appropriate content; neither do they specify when the records must be created. But reading through the accumulation of case law helps clarify how both the IRS and the courts view the written record requirement.

First, records created close to the time you did the actual driving have more credibility than those created later. A notebook log you keep in the car and completely fill out with odometer readings before you get out of the vehicle is the Platonic ideal. You can buy those at any office supply store. However, I have never known anyone—actor or not—who actually used one of those as intended.

More realistic, and plenty good enough, is an appointment calendar or diary showing where you went on a particular day. A notation of the business mileage for that day on the page is great, but tallying it up later is OK. That is particularly true if the driving pattern is repetitive, which it commonly is during the run of a show. And it is permissible to transcribe and summarize the information, so that your tax preparer has something comprehensible to work with. Just save the underlying raw documents.

Second, the data has to pass the "sniff" test. A Tax Court case last year involved a college drama professor who taught three days a week. The log he provided showed he conducted research at an outside library every weekday he did not teach, including Memorial Day and July 4. This also contradicted his sworn testimony in another part of the case that he had had two rehearsal periods where he worked seven days a week, 14 hours a day. He lost.

Reality Check

The reality in day-to-day dealings with the IRS is slightly less severe.

When a new client tells me he lacks records for the previous year, I tell him to immediately start keeping meticulous mileage records for the current year, and to build the best estimate he can for the previous year working "from the bottom up." By that, I mean not using an arbitrary percentage but rather calculating this many rehearsals, that many performances and the other number of classes. If that both passes the sniff test and produces a business use percentage consistent with the subsequent year, most IRS agents will allow the deduction.

Similarly, the regulations call for you to measure the distance using the car's odometer, but they were written before MapQuest and similar web services became available. I have generally found that IRS agents will accept that as the source for mileage-per-trip, provided that the other data are credible.

Miles into Dollars

Once you have established the number of business miles, you need a cost-per-mile to calculate the deduction. There are two ways to do this, which I refer to as "hard" and "easy."

The hard way involves determining all of your automobile costs for the year: gas, oil changes, repairs, insurance, license plates and depreciation (which is a way of spreading the car's cost over several years). Divide that by the total miles you drove last year, and you have your actual cost per mile.

The easy way involves using a mileage rate that the IRS publishes every year. It was 37.5 cents per mile last year; for 2005, it rises to 40.5 cents. While that seems generous, be aware that actual cost per mile can be significantly higher for those who do not drive much. Their per-mile cost for fixed expenses (like insurance and depreciation) can double the rate.

A Way Not to Keep Records

The IRS does not require you to substantiate the business use of certain vehicles that, by their design, are likely to have minimal personal use. The list includes delivery trucks with one seat, cranes, forklifts, cement mixers and farm tractors—stuff that even the most eccentric rock star wannabe would hesitate to use as daily transportation. That said, I did know someone when I was in graduate school who drove an ancient flatbed truck around Hyde Park. The pig truck (as he called it) was great when we needed to move scenery across campus, but trust me: you don't want to even attempt parallel parking in one.

Something Else Useful

It won't substitute for a mileage log, but I'll be pleased to send you a free copy of my "Checklist of Potentially Deductible Items" for those in the arts. Just write, phone or e-mail me.

Are there money or tax questions you would like to see discussed in this column? Let me know at 2835 N. Sheffield, Suite 311, Chicago, IL 60657, or call 773/525-1778 (888/525-1778 toll-free outside the Chicago area) or e-mail greg@gregmerml.com.

Greg Mermel is a certified public accountant whose clients in the arts range from individual performers to major theatre companies and suppliers. He also has been known to produce theatre.

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