Attorney-at-Law

HEAVY WEATHER — FOR WEATHERLY

In Uncategorized on 08/26/2011 at 16:43

Or, Six Out of Sixty-Four Isn’t Enough

While I ordinarily wouldn’t spend much time on a run-of-the-mill substantiation case, I couldn’t resist the petitioner’s name in light of the current hurricane brouhaha.

So here is the short story of Jeremiah and Addie Weatherly, 2011 T.C. Mem. 206, filed 8/25/11.

Jeremiah was a bailiff. He hired various casual laborers to help him evict tenants, serve process and move property. Jeremiah claimed he got names, addresses, and SSANs for all his workers.  IRS disallowed all his labor deductions.  On audit, he produced 64 1099-MISCs, but had never filed them with IRS. At the audit, IRS requested Jeremiah to provide Forms 4669, Statement of Payments Received, for all the casuals.

Jeremiah produced eight, but two got bounced for mismatched SSANs. The number of orphan SSANs must be in the millions; SSA was quoted years ago as saying that billions in FICA payments were not credited to individual workers due to mismatches. The reasons varied from illegal immigrants using stolen numbers to people changing their names when they got married and not telling SSA to identity thieves to simple keypunch errors.

IRS concedes the payments to the six as a deductible expense. Jeremiah wants an approximation for the rest.

No can do, says Judge Haines. “Petitioners have not provided contemporaneous books and records to substantiate their contract labor expense for 2005.  Further, Mr. Weatherly failed to testify at trial to the recordkeeping practices of his business. Petitioners merely produced 64 Forms 1099-MISC prepared for the audit without any supporting documentation. These Forms 1099-MISC were not filed with the IRS. Petitioners were able to produce only six valid Forms 4669 for six daily workers, for which respondent conceded a deduction of $25,115. As to the remainder of their claimed contract labor expense, petitioners have failed to substantiate that such an amount was paid. In fact, the evidence submitted does not provide us with a reasonable basis upon which an approximation of an allowed amount of contract labor expense could be made under the Cohan rule. Accordingly, we sustain respondent’s determination with respect to the contract labor expense.” 2011 T.C. Mem. 206, at pp. 4-5.

Moral–Six out of sixty-four is too few.

Footnote– Jeremiah and Addie represented themselves. Further, the amount of the deficiency was more than $67K. Why Jeremiah did not find an attorney to represent him baffles me. Bailiffs tend to have contacts in the legal profession. Nevertheless, Jeremiah and Addie went it alone, and encountered stormy weather.

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