What are the IRS penalties for not having a mileage log?

Do you claim the mileage deduction on your taxes without having a mileage log?  If so, you’re not alone.

Until new technology came out, keeping a log was too easy to forget about in the midst of a busy day.  Some people have caught on to the new options available, but a lot of people are still just claiming the miles without having a log.

But just because other people do it does not mean you are safe!   Vehicle deductions are one of the biggest red flags for the IRS.

Two Versions of Audit Penalties

There are two versions of penalties that you are looking at if you are audited, and you’ve probably only considered the second one.  You will pay one of these if you are audited without a mileage log.

• Weeks of your time re-creating your mileage log
• Financial penalties from the IRS

Your time re-creating your mileage log

While this isn’t a direct financial penalty, it’s certainly an indirect penalty you will be paying for weeks if not months.

Here’s the most common scenario:  You are audited for the last 3 years, of which you have claimed about 12,000 miles each year.  That’s 36,000 miles over a period of 3 years that you have to re-create your mileage log for.

How do you re-create your log?

You go through your entire receipt book, credit card statements, scheduling book, and emails to re-create a log with as much provable detail as possible.  A receipt shows that you stopped for gas, then you had an appointment with a client, then the credit card shows you bought something at the grocery store, etc…  Then you google one address to the next and add up the miles.

You do this for every single day for the last 3 years.  And hope that at the end it all adds up to what you claimed on your taxes.  If it doesn’t, you go back and try to find what you missed – or you just accept the fine the IRS is going to levy on you.

By now you should be running to buy an automatic mileage tracker like a Mileage Ace.

Financial Penalties from the IRS

If you aren’t able to satisfactorily prove your mileage claims to the IRS then you are looking at a penalty.  The IRS penalty for claiming business miles without a mileage log is the greater of $1000 or 50% of your income! 

So, if you are claiming a mileage deduction but not logging your miles, you could be on the line for a huge penalty. This is enough to make people go bankrupt.

For full details see: Notice 2007-54: Preparer Penalty Provisions Under the Small Business and Work Opportunity Act of 2007