The tax code imposes strict substantiation requirements on the business use of certain kinds of personal property including cell phones. These requirements are explained fully in chapter 7 of Richard Hammar’s 2003 Church & Clergy Tax Guide as well as in prior issues of this newsletter. These requirements are cumbersome, and many feel that the modest cost of cell phone charges does not warrant compliance with these rules. A recent Tax Court case demonstrates that such a view will not be acceptable to the IRS or the courts. The case involved a taxpayer who claimed a business expense deduction of $1,200 for the use of a cell phone and pager. The Tax Court denied a deduction for any of these expenses since the taxpayer did not comply with the strict substantiation requirements that apply to cell phones. The court concluded, “The deduction for cell phone and pager expenses is subject to the same strict substantiation requirements as the car expenses. The taxpayer’s failure to substantiate the expense by original or reasonably reconstructed records is grounds for disallowing the deduction.” Lemos v. Commissioner, T.C. Summary Opinion 2002-29 (2002).

This article first appeared in Church Treasurer Alert, January 2003.