Recordkeeping requirements and the consequences of lost, destroyed or stolen records.

EXECUTIVE SUMMARY

* Taxpayers' books and records must be sufficient to establish gross income, deductions, credits and other items shown on a return.

* In certain circumstances, a taxpayer who claims that records are lost or destroyed can substantiate a deduction by reconstructing the expenditures.

* Some deductions, such as travel, entertainment, gambling and charitable contributions, require specific and more strict recordkeeping than others.

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Taxpayers have to substantiate the accuracy of their returns with appropriate books and records. This article discusses the general and specific recording requirements that apply to most taxpayers.

In filing tax returns or other documents with the IRS, taxpayers are under a duty to keep and maintain books and records that will substantiate the accuracy of their filed documents. Tax law includes both general and specific recordkeeping responsibilities. A failure to adhere to these can result in the loss of favorable tax treatment, the disallowance of deductions, tax deficiencies and, often, penalties. When records are lost, destroyed in a casualty or stolen, some relief is possible, but only after satisfying tough burden-of-proof and reconstruction requirements. This article discusses recordkeeping requirements, the taxpayer's burdens of proof at examination or in litigation, and the administrative and judicial policies that have evolved to deal with defective records.

Books and Records

Regs. Sec. 1.6001-1 sets forth the general requirement that all persons required to file income tax returns must keep books of account or records (including inventories) to sufficiently establish gross income, deductions, credits and other matters shown on the return. The regulation goes on to require retaining records and making them available for inspection by the IRS, for as long as their contents may be material to the administration of the tax. Other regulations under Sec. 6001 list similar requirements for estate tax, gift tax, payroll taxes, excise taxes and information returns.

Accounting Periods and Methods

According to Kegs. Sec. 1.441-1(b)(7), books should consist of records that clearly and adequately reflect income on an annual basis. To that end, Sec. 446 specifies using the cash receipts and disbursement method of accounting, the accrual method, or some combination of methods approved by the Service, as long as it clearly reflects income. Inventory requires use of the accrual method for purchases and sales, although there are some small business exceptions. A hybrid method can use elements of both methods, provided it clearly reflects income and is used consistently from year to year. Special transactional accounting methods are also available, such as the installment and completed-contract methods. Whatever the method, it must clearly reflect income and accurately represent the taxpayer's income, expenses and credits.

While wage-earners have to keep accurate records, they do not have to keep formal accounting books, under Regs. Sec. 1.6001-1(b). Whether or not required to keep books, all taxpayers must be able to substantiate the accuracy of their returns.

Definition

What are "books and records"? According to IRS Pub. 583, Starting a Business and Keeping Records, appropriate records should be of two types--supporting documents of specific transactions, and summaries of those transactions. Examples of supporting documents are cash register tapes, purchase orders, sales invoices, payroll records, bank deposit slips, cancelled checks, credit card receipts, information returns (Forms 1099), bank statements and similar documents. Summaries of transactions are kept and recorded in accounting journals and ledgers (e.g., sales registers, check registers, depreciation schedules, payroll reports and bank reconciliations).

Recordkeeping Requirements

Sec. 274 imparts strict recordkeeping requirements for specific expenditures. When applicable, it requires taxpayers to have expense records; otherwise, they cannot take the deduction, even if otherwise eligible.

Temp. Regs. Sec. 1.274-5T(b)(2) applies to the following expenditures:

1. Business travel away from home, including meals and lodging;

2. Any business expenditure for entertainment, amusement or recreation, or for a facility used in such an activity;

3. Business gifts; and

4. The use of listed property (e.g., cell phones, cameras, computers and automobiles). Similar rules apply under Sec. 280F for home office deductions.

Taxpayers meet the Sec. 274 substantiation requirement when they maintain adequate records. The term "adequate records" has two components--a diary, log of expenses or similar record--corroborated by documentary evidence, which generally includes receipts for all items over $75 and for lodging. Exhibit 1 on p. 466 shows the substantiation elements. They can be described as follows:

1. Amount. This is the amount of each separate expense, such as transportation, lodging or meals. However, the daily cost of meals and incidentals can be compiled into general categories, such as meals, taxi fares and laundry. Entertainment is treated similarly; the daily cost of taxi fares and telephone calls is aggregated. The amount spent on gifts or listed property (including acquisition costs and capital improvements) must be documented.

2. Time. This is the exact dates the traveler is away from home; the number of days spent on business while away from home and the dates of entertainment, gifts and acquisition of listed property.

3. Place/Destination. This is the specific cities, towns or places the traveler visited while on business away from home, and includes the name, address, and/or location of entertainment or place of business discussion.

4. Description of item. This is a description of the specific gift given.

5. Business purpose. This is the business reason for traveling or the type of benefit the individual expects to result from traveling or the use of listed property. It includes the business reason and the nature of the business discussion, as well as the business reason or anticipated benefit for entertainment and gifts.

6. Business use. This is the amount of business or investment use, such as miles driven for automobiles or minutes of conversation for cell phones. This component supports the allocation of business and nonbusiness use of an item of property.

7. Business relationship. This is the identification of the people entertained or the recipients of gifts and their occupations, to establish a business relationship.

What Constitutes Substantiation?

Adequate records: In general, Temp. Regs. Sec. 1.274-5T(c) requires that taxpayers have adequate records to substantiate each required element for the expenses described above. Taxpayers should maintain an account book, diary, log, statement of expense, trip sheet or similar record, along with documentary evidence (e.g., receipts, cancelled checks) that supports entries in the account book, etc. The substantiation requirement can best be met with written records made at or near the time of the expenditure or the use of business property. Weekly entries in a log meet the "at or near the time" requirement. It is particularly important for written records or documentary evidence to substantiate the business purpose and, in the case of listed property, the business use, to ensure that deductions and/or credits are allowed. Written evidence has much stronger probative value than oral evidence.

For an automobile or other listed property, the business verses personal-use components of usage may be substantiated by use of a sample taken over a representative portion of the year. (1)

An employee who makes an adequate accounting to his or her employer will not be asked to substantiate those expenses again, except in the following cases:

* An employee whose business expenses exceed the total amount of reimbursement and who claims expenses on his or her return.

* An employee who is a greater-than-10% owner of the employer.

* The employer's procedures for reporting and substantiating expenses are inadequate under Temp. Regs. Sec. 1.274-5T(f)(5).

Corroboration: A written record must be corroborated by documentary evidence with receipts for all items over $75 and for lodging. Documentary evidence is considered adequate support for expenditures, provided it includes the following information: the amount, date, place and essential character of the expenditure. For lodging and meal expenditures, Regs. Sec. 1.274-5(c)(2)(iii) (B) states:

[A] hotel receipt is sufficient to support expenditures for business travel if it contains the following: name, location, date, and separate amounts for lodging, meals, and telephone. Similarly, a restaurant receipt is sufficient to support an expenditure for a business meal if it contains the following: name and location of the restaurant, the date and amount of the expenditure, the number of people served, and, if a charge is made for an item other than meals and beverages, an indication that such is the case.

For other expenditures, cancelled checks should be accompanied by bills or invoices, to provide the required documentary evidence.

More and more taxpayers are using electronic devices (e.g., computers, hand-held memory devices) to maintain records related to business expenses and the use of business equipment. Temp. Regs. Sec. 1.274-5T(c)(2)(ii)(C)(2) indicates that for the use of listed property, records "prepared in a computer memory device with the aid of a logging program will constitute an adequate record." Rev. Proc. 98-25 (2) specifies that machine-sensible records used to track business income and expenses must contain sufficient transaction-level detail to identify the information and source documents on which the machine records are based. Further, machine-sensible data constitutes records within the meaning of Sec. 6001; such records must be made available to the IRS on request. Hard-copy books and records may be scanned onto electronic storage media, but such electronic storage systems must index, store, preserve, retrieve and accurately and legibly reproduce the electronically stored books and records. (3)

Alternative Methods

Temp. Regs. Sec. 1.274-5T(c)(3) anticipates allowing proof other than by adequate records. The provision is vague and allows proof by the taxpayer's own statement and "by other corroborative evidence." Notwithstanding this language, complete, contemporaneous recordkeeping is clearly favored; other methods are disfavored. (4)

Inadequate Records

When the Service determines that the taxpayer's records are inadequate, problems begin. Favorable tax treatment is lost and deductions are disallowed, resulting in tax deficiencies. Further, most cases of inadequate recordkeeping subject the taxpayer to penalties--most frequently, the Sec. 6662(b)(1) accuracy-related penalty for negligence. In more extreme cases, the IRS can completely ignore the taxpayer's return and create a new one.

Personal Transactions

In Her, (5) the taxpayer failed to keep records showing that she provided more than one-half of the support of her three children and the home in which they all lived. This failure resulted in lost head-of-household filing status, dependency exemptions and the childcare, child and earned income tax credits. In Strong, (6) a failure to produce a copy of an extension form resulted in a failure-to-file penalty; the failure to obtain a receipt for contributed property resulted in the loss of a charitable deduction.

General Expense Substantiation Principles

When analyzing inadequate-record cases, the courts have set forth these general legal principles:

1. The Service's determinations are presumed to be correct;

2. The taxpayer bears the burden of proving the determination erroneous; and

3. Deductions are a matter of legislative grace; taxpayers bear the burden of proving they are entitled to any deduction claimed, including the burden to substantiate. (7)

Cohan Rule

When a taxpayer shows that he or she is entitled to a deduction, but cannot prove its exact amount, the court may allow an approximation. The musical composer and producer George M. Cohan, despite his other talents, was not much of an accountant. He kept few business records to support his claim that he had business expenses for travel and entertainment. The IRS and the Board of Tax Appeals disallowed his claimed deductions, but sympathetic Judge Learned Hand, after determining that Cohan had indeed traveled on business and incurred allowable expense, ruled that the Service "should make as close an approximation as it can, bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making." (8) The Cohan case has been legislatively overruled by Sec. 274 for deductions involving travel, transportation, business meals and entertainment and for certain listed property, but is still good law for other expenses.

Approximating under Cohan

The courts that have allowed taxpayers to approximate their deductions under Cohan require them to prove that there is a reasonable basis or foundation for the estimate; mere guesswork or vague generalizations are not sufficient. In Vanicek, (9) the taxpayer was a night watchman employed by the Forest District Preserve of Cook County, IL and was required to reside in a residence on the property he patrolled. Although his residence was provided rent-free, he incurred significant expenses for utilities, maintenance and improvements that he sought to deduct as business-related expenses.

The court denied all deductions on the grounds that the taxpayer produced no evidence to allow an allocation of the expenses between business and personal use. In Veizaga, (10) the taxpayer was unable to estimate the amount of his casualty loss, because he could not produce sufficient evidence to make such an estimate credible. Bearing in mind that the taxpayer has the burden of proof and that the Cohan court held that inexactitude weighs against the taxpayer, the opportunity to estimate may be of limited value.

Lost Records

When a taxpayer claims that his or her records are lost, Temp. Regs. Sec. 1.274-5T(c)(5) provides some relief, in limited circumstances. "Where the taxpayer establishes that the failure to produce adequate records is due to the loss of such records through circumstances beyond the taxpayer's control, such as by fire, flood, earthquake, or other casualty, the taxpayer shall have the right to substantiate a deduction by reasonable reconstruction of his expenditures or use." (11) Courts enforcing this regulation impose three requirements; the taxpayer must:

1. Show by credible evidence that he or she maintained adequate records;

2. Show that the loss of the records was due to circumstances beyond his or her control; and

3. Reconstruct the records. (12)

In Murray, (13) a traveling salesperson returned from a trip to find that he had been evicted from his apartment; his belongs, including his records, had been put out on the street and lost or destroyed. The court found that the records were lost by events beyond his control. In another case, (14) records lost by the taxpayer during a series of voluntary moves of his residence was ruled to be due to the taxpayer's inadvertence and, thus, not beyond his control. In still another case, (15) the court ruled that marital difficulty was not a casualty that rendered the taxpayer unable to reconstruct his expenses. However, in Canfield, (16) the taxpayer was under a court order to vacate his home and not come near it, and his wife burned his records while he was away from home. The court ruled such loss to be a casualty.

Another interesting case of lost records is Andrew Crispo Gallery, Inc., (17) in which the IRS seized the records and then lost them. The court held that (1) it may infer that the facts are as alleged by the taxpayers to be in the lost records and (2) after the taxpayer offers credible evidence that the lost records were properly maintained, the taxpayer is entitled to a presumption that the facts are as they represent them to be in the records. Crispo applies when the government has seized and lost records. In Cook, (18) the taxpayer claimed the IRS failed to return a box of records submitted during an audit. The court disallowed deductions and a credit on the basis that the records were inadequate, because the taxpayer had ample opportunity to substantiate the disputed amounts with secondary evidence, but failed to do so.

Record Reconstruction

When a taxpayer is eligible to reconstruct his or her expenses, IRS Pub. 4268, Indian Tribal Government Employment Tax Guide (p. 112) suggests the following:

1. Determine exactly what has been lost.

2. Determine if it is the only copy of an item.

3. For those items that are the only copy, rank the relative importance of the lost items, starting with those of highest importance.

4. Make a list of the items that warrant the time and expense of reconstruction.

5. Determine if there is a state, Federal or other agency from which to request a copy of a lost report.

6. For items of public record, contact the local courthouse for a copy.

7. For bank records, contact the bank. It can be expensive to get copies of canceled checks, but they are available.

Reconstruction must coincide with the facts and be based on more than vague generalizations. For example, in Veizaga, a taxpayer whose records were destroyed in a fire was not permitted a casualty loss or entertainment expense, because he was unable to produce credible evidence to support the amount claimed. Temp. Kegs. Sec. 1.274-5T(c)(5) specifies that when a taxpayer's records are destroyed, deductions must be substantiated by "reasonable reconstruction of his expenditures." Thus, rough estimates or vague recollections will not satisfy the substantiation requirements. (19)

Other Specific Recordkeeping Responsibilities

Gambling losses and charitable contributions have specific substantiation requirements.

Gambling Losses

Rev. Proc. 77-29 (20) specifies that taxpayers who wish to deduct their gambling losses must regularly maintain a diary or similar record supplemented by verifiable documentation. It also states the following minimum information should be included in the diary:

* Date and type of specific wager or wagering activity;

* Name of gambling establishment;

* Address or location of gambling establishment;

* Name(s) of other person(s) (if any) present with the taxpayer at the gambling establishment; and

* Amount(s) won or lost.

Supporting documentation includes, but is not limited to, Forms W-2G, Certain Gambling Winnings; Form 5754, Statement by Person Receiving Gambling Winnings; wagering tickets, canceled checks, credit records, bank withdrawals and statements of actual winnings or payment slips provided to the taxpayer by the gambling establishment, as well as affidavits or testimony from responsible gambling officials about the taxpayer's wagering activity. The Tax Court typically allows taxpayers who maintain good records of their gambling activities to deduct their losses (21) to the extent of their winnings, and denies such deductions to taxpayers who fail to maintain adequate records. (22)

Charitable Contributions

The records taxpayers are required to keep to substantiate charitable contributions vary with the type of contribution (cash or non-cash) and the amount. For cash contributions of less than $250, taxpayers must retain either a cancelled check or a receipt, such as a letter that shows the name of the organization, the date and the amount of the contribution. When taxpayers make charitable contributions of $250 or more, Sec. 170(f)(8) specifies that to claim a deduction, taxpayers must receive a contemporaneous written acknowledgment from the donor organization that states:

1. The amount of cash and a description of any noncash property received;

2. Whether the donee organization provided any goods or services in exchange for the contribution; and

3. A description and good-faith estimate of any goods or services provided to the donor.

Contemporaneous written acknowledgment:

If a charitable organization, such as a museum, offers an annual membership for $75 or less, which includes free admission to the museum or similar privileges that may be exercised frequently during the year, Regs. Sec. 1.170A-13(f) (8) posits that such services are insubstantial and need not be included in the contemporaneous written acknowledgment of individuals who make such donations and receive the free membership. The contemporaneous acknowledgment must be received after the gift is made and before the due date for filing the return for the year (including extensions) in which the contribution was made. Taxpayers must reduce the amount of their deductible contribution by any goods and services over a nominal amount received from a charity.

Example: X, an individual, makes a $75 contribution to a museum and receives an annual membership entitling him to flee admission for a year and a shirt valued at $25. The museum's written acknowledgment need only mention the $25 value of the shirt, because the flee admission is deemed insubstantial and, hence, can be disregarded. (23)

Further, charitable organizations are required to provide donors with a written disclosure when they receive goods or services in exchange for payments over $75. Hence, if a donor purchases a ticket to a charity dinner for $120 and the dinner's value is only $50, the charitable organization must furnish the donor with a written disclosure statement indicating the latter. (24)

Provision of services: Taxpayers who provide services to qualified charities can deduct their out-of-pocket expenses. For automobile expenses, taxpayers should keep records that show the name of the organization, as well as the date and miles the vehicle was driven for charitable purposes. Taxpayers may claim either the standard rate (14 cents per mile) or actual expenses (gas and oil) of operating their vehicles for charitable purposes. For other expenses, records are needed to prove the amount of the expense and an acknowledgment must be received from the qualified organization, describing the services provided and any goods or services given to reimburse the taxpayer for his or her services. Thus, if individuals are chosen to represent a charitable organization at an annual convention and they purchase their own plane tickets and pay for their own hotels, they should keep their receipts and obtain from the organization a description of the services provided. In addition, the written acknowledgment should indicate that they received no goods or services from the organization.

Noncash contributions: Form 8283, Noncash Charitable Contributions, must be completed when noncash contributions over $500 are made to a charity; additional requirements govern the contribution of vehicles. For example, if publicly traded securities are contributed to a charitable organization, the taxpayer should determine from a newspaper or the Internet the fair market value (FMV) of those securities on the date of the contribution, as this information will be needed for completing Form 8283. The taxpayer must also obtain a written acknowledgment from the charity containing a description of the property donated. If a taxpayer donates land to a charity and the value of the land is over $5,000, the taxpayer must obtain an appraisal to establish the land's FMV.

After the American Jobs Creation Act of 2004, Sec. 170(f)(12)(A) disallows charitable deductions for automobiles, boats and planes whose claimed value exceeds $500, unless the taxpayer receives a written acknowledgment from the charity within 30 days of the contribution or the date the charity disposes of the vehicle. The acknowledgment must contain the taxpayer's name, taxpayer identification number and vehicle identification number. If the charity sells the vehicle without any significant intervening use, the deduction cannot exceed the charity's gross proceeds from the sale. The organization is required to provide the donee with the date of the sale, the gross proceeds from the sale and a certification that it was sold in an arm's-length transaction between unrelated parties. The IRS has created Form 1098-C, Contributions of Motor Vehicles, Boats and Airplanes, to facilitate this reporting process. The recordkeeping requirements for noncash cotributions are summarized in Exhibit 2 at right.

Shifting the Burden of Proof

Sec. 7491 provides a diligent taxpayer with an opportunity to shift the burden of proof to the IRS in a records case by doing the following:

1. Complying with the requirements to substantiate an item; and

2. Maintaining all required records and cooperating with reasonable Service requests for witnesses, information, documents, meetings and interviews.

In the case of a partnership, corporation or trust, net worth cannot exceed $7 million.

According to Higbee, (25) "[a] taxpayer has not produced credible evidence for these purposes if the taxpayer merely makes implausible factual assertions, frivolous claims, or tax protestor-type arguments." The introduction of evidence will not meet this standard if the court is not convinced that it is worthy of belief." Hence, in Higbee, when the taxpayer failed to produce a competent appraisal or reliable estimate of repairs, the burden of proof was not shifted to the IRS and the casualty loss deduction was disallowed. The court also disallowed Higbee's charitable deductions, which were based on self-generated receipts, as well as his Schedule C business and Schedule E rental expenses, which were not supported by adequate records. Higbee defined credible evidence as "the quality of evidence which, after critical analysis, the court would find sufficient to base a decision on the issue if no contrary evidence were submitted (without regards to the judicial presumption of IRS correctness)." (26)

Estimation

While taxpayers must generally keep records and have supporting documentation for deductions and credits, there are some provisions that specifically allow a taxpayer to make estimates. Cost depletion (under Regs. Sec. 1.611-2), percentage of completion (for long-term contracts, under Sec. 460(b)(1)(A)), trading-stamp and coupon redemption (under Regs. Sec. 1.451-4), and funding Secs. 401(a) and 403(b) trusts (under Regs. Sec. 1.412(c)(1)-2), are but a few of the tax provisions that require taxpayers to make estimates. The AICPA's Statement on Standards for Tax Services, No. 4, "Use of Estimates" specifies that estimates should not be misleading as to the degree of accuracy. Further, in unusual circumstances in which authorities might be mislead, specific disclosure of the estimates used should be made. Death of a taxpayer, failure to receive Schedules K-1 in time for filing a return, pending litigation (e.g., bankruptcy proceedings) and a fire or computer failure destroying records, are all examples of when the use of estimates should be disclosed.

Penalties

A review of the cases involving inadequate records shows that the IRS has imposed the accuracy-related penalty for negligence many times. It appears to be imposed in all Sec. 274 cases and a majority of non-Sec. 274 cases. The penalty is 20% of the understatement as computed by the Service. Under Sec. 6662(c), "negligence" includes any failure to make a reasonable attempt to comply with the provisions of the title. Also, Regs. Sec. 1.6662-3(a) states that it includes any failure by the taxpayer to keep adequate books and records or to substantiate items properly. To contest the application of the penalty under Sec. 6664(c), the taxpayer must either prove that its recordkeeping was adequate or successfully argue that its failure to do so was due to reasonable cause and that it acted in good faith. Courts will consider the taxpayer's experience, knowledge and education, and efforts to comply with the law, including reliance on the advice of professionals. (27)

Record Retention

The general rule governing how long to keep tax records is a minimum of three years from the later of the due date of the return or the date filed, while the statute of limitations (SOL) on assessment is still running. However, if gross income is understated on a return by more than 25% percent, the SOL extends to six years under Sec. 6501(e), in which case, retaining records for six years is helpful. Under Sec. 6501(c), there is no SOL if a return is not filed or is fraudulent. Further, records showing the basis of business and investment assets should be kept for at least three years after the return was filed on which the sale of the asset was reported. Similarly, IRA and pension-related records should be kept for a minimum of three years after all the funds have been withdrawn from the accounts and reported on a return. Vacation homes, charitable deduction carryovers, businesses that may be construed as hobbies or net operating losses necessitate retaining records for extended periods.

Conclusion

Although most tax professionals are well aware of the need to keep records and document expenses, many may not be aware of the situations in which approximations are permitted under Cohan. Further, it is useful to review the specific documentation required for travel, entertainment, gifts and listed property, including home office expenses, gambling and charitable deductions, to ensure that clients can claim all the tax benefits to which they are entitled. Careful recordkeeping and reconstruction of lost records can help avoid costly litigation and tax penalties.

For more information about this article, contact Dr. Christensen at [e-mail].

Anne L. Christensen, Ph.D

Professor of Accounting

College of Business

Montana State University

Bozeman, MT

William J. Kenny, J.D., CPA

Professor of Accounting

School of Business Administration

Portland State University

Portland, OR

(1) See Temp. Regs. Sec. 1.274-5T(c)(3)(ii).

(2) Rev. Proc. 98-25, 1998-1 CB 689.

(3) See Rev. Proc. 97-22, 1997-1 CB 652. Rev. Proc. 81-46, 1981-2 CB 621, provides guidelines for storing records on microfilm.

(4) See Charles Reynolds, 296 F3d 607 (7th Cir. 2002).

(5) Chue Y. Her, TC Suture. Op. 2005-130.

(6) Romaner J. Strong Jr., TC Memo 1994-346.

(7) Roger L. Williams, TC Memo 1998-93.

(8) George M. Cohan, 39 F2d 540 (2d Cir. 1930).

(9) Edward Vanicek, 85 TC 731 (1985).

(10) Eddy A. Veizaga, TC Memo 1981-663.

(11) The courts have imposed similar rules when the expenditures are not specifically covered by Sec. 274; see Robert Inzano, TC Memo 1998-282.

(12) See id.

(13) Irwin Andre Murray, TC Memo 1980-500.

(14) Steven Lewis, TC Memo 1983-741.

(15) Joe F. Gizzi, 65 TC 342 (1975).

(16) Matthew J. Canfield, TC Memo 1980-553.

(17) Andrew Crispo Gallery, Inc., 16 F3d 1336 (2d Cir. 1994).

(18) Earl N. Cook, TC Memo 1991-590.

(19) See Ernest L. Kibble, TC Memo 1982-245.

(20) Rev. Proc. 77-29, 1977-2 CB 538.

(21) See Berline L. Dunnock, TC Memo 1980-449.

(22) See Aguinaldo Rivera, Jr., TC Memo 1988-497.

(23) See IRS Pub. No. 1771, Charitable Contributions--Substantiation and Disclosure Requirements.

(24)See id.

(25) Earl G. Higbee, 116 TC 438, 440-441 (2001), citing H Rep't No. 105-599, 105th Cong., 2d Sess. (1998), p. 240-241.

(26) Higbee, note 25 supra, at 116 TC 440.

(27) See Carroll R. Funish, TC Memo 2001-286.

Exhibit 1: Substantiation elements

                           Time/           Description
Expenditure       Amount   date    Place     of item

Travel away
from home           X        X       X

Entertainment       X        X       X

Gifts               X        X                  X

Listed property
(including
automobiles)        X        X

                  Business   Business     Business
Expenditure       purpose      use      relationship

Travel away
from home            X

Entertainment        X                       X

Gifts                X                       X

Listed property
(including
automobiles)         X

Exhibit 2: Records needed for noncash contributions

                                      Between    Between
Required information          Under   $250 and   $500 and    Over
                              $250     $500      $5,000     $5,000

Receipt-charity name,
  location, date                X        X          X          X

Detailed description
  of property                   X        X          X          X

FMV of contribution             X        X          X          X

Method for figuring FMV         X        X          X          X

Cost or other basis             X        X          X          X

Amount of donation claimed      X        X          X          X

Terms of conditions
  attached to gift of the
  property                      X        X          X          X

Goods or services received
  from charity                           X          X          X

How property acquired and
  date acquired                                     X          X

Qualified written appraisal                                    X