Employee Business Expense Audits

For several years now, the IRS has been conducting audits on deductions taken for unreimbursed employee expenses.  This past year the California Franchise Tax Board contacted over 72,000 tax payers regarding the requirements for claiming unreimbursed employee deductions.  Let’s discuss what their audits are focusing on:


1.       Substantiation – do you have records to support deduction

2.       Reimbursement Policy – does your employer have a policy?  This is important whether you submitted for reimbursement or not.  They will want to see a copy of the policy or letter from employer stating they do or do not reimburse.  The IRS and FTB will follow up with the employer to verify the content of the letter, so do not submit falsified facts. 

a.       If your employer does reimburse for a particular expense and you do not submit for reimbursement, the deduction you take will be denied. 

3.       Mileage – did you claim nonductile commuting mileage?

4.       Documentation – do you have your records for past years?  The IRS requires you maintain records for 3 year, while the California Statue of Limitation is 4 years.  Receipts must be clear as to the purpose of the expense!

Remember, good documentation is the key to surviving an audit!