One Burden, But Not Another

The truck driver in this case is David W. Bauer, and his eponymous case is 2012 T.C. Mem. 156, filed 6/4/12. But Dave is no over-the-road California Turnaround Jack Greene type. Dave hauls personal effects, furniture and furnishings for relocating businesspeople and others who have to get out of Dodge (or wherever).

To do his job, Dave needs to wrap and pack, and unwrap and unpack, his customers’ future entries on Antiques Roadshow. To make all this happen, he hires roustabouts, day laborers and casual folks at start and at destination, whom he gets from local moving companies. The casuals only take cash, because Dave is here today and gone with Chuck Berry’s cool breeze tomorrow.

Dave keeps a logbook, wherein he records his trips and what he pays his pickup crews. As he roams from town to town, he never hires the same people twice, so he doesn’t send out 1099s or W-2s, as nobody gets more than $600 from Dave.

IRS audits Dave. Dave doesn’t like IRS’ numbers, so he petitions, and introduces his logbook, looking for a Section 7491(a) burden of proof shift. No, says Judge Paris, you can’t upshift this one. “Petitioner claims that he met the requirements to shift the burden of proof to respondent because he substantiated his contract labor expenses with a logbook and testimonial evidence. Although the logbook purports to document petitioner’s daily expenses during the tax years at issue, its omission of periods of time and, as petitioner acknowledges, its mathematical errors and other inconsistencies, undermine the credibility of the logbook and the expenses recorded therein. The Court does not accept the logbook as credible evidence within the meaning of section 7491(a), nor does the Court accept petitioner’s uncorroborated and selfserving testimony to overcome the logbook’s unreliability. See, e.g., Tokarski v. Commissioner, 87 T.C. 74, 77 (1986). Thus, the Court holds that petitioner has not shown that he complied with the requirements of section 7491(a), and the burden of proof remains with him.”  2012 T. C. Mem. 156, at p. 6 (Footnote omitted).

Dave flunks the burden of proof, as he admits his logbook is inaccurate.

Now for the penalties. Even though Dave’s logbook fails to shift the first time, it works to shift the penalties. Judge Paris: “Although inadequate to substantiate his expenses, petitioner’s logbook demonstrates that, given the circumstances of his profession, he made a good faith effort to maintain a record of his contract labor expenses for substantiation purposes. Petitioner paid each contract laborer less than the $600 reporting threshold amount of section 6041(a).13 Therefore, except for substantiation purposes, petitioner did not have a business reason to keep detailed records of payments made to contract laborers. Moreover, because petitioner generally hired itinerant workers, he was compelled to make payments in cash. Although he did not use the more reliable recording options available for other types of payments, petitioner kept hand notations of his cash payments in a logbook.

“Accordingly, even though petitioner’s attempt to keep a record of his contract labor payments fell short for substantiation purposes, his recordkeeping demonstrates that he made a good faith effort for purposes of section 6662(a).” 2012 T. C. Mem. 156 at pp.11-12 (Footnote omitted).

Keep on truckin’, Dave.