Business owners can generally deduct ordinary and necessary business expenses if they have proof. But one married couple that owned six LLCs claimed they had too much proof to present in court. After they failed to file tax returns for several years, the IRS created substitute returns. In U.S. Tax Court, the taxpayers relied mostly on entries in their business journals. Additional proof was unavailable, they stated, because it was too voluminous to produce or was tied up in other litigation. The court refused to accept the taxpayers’ records because actual evidence of deductions wasn’t presented. The court didn’t accept their claims and imposed additional tax and penalties. (TC Memo 2024-95)
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