In Uncategorized on 10/10/2019 at 15:50

It wasn’t his fire. The fire destroyed the home of his CPA. Brent Katusha, 2019 T. C. Sum. Op. 31, filed 10/10/19, thereby lost the records to substantiate his Sched C deductions. The fire apparently didn’t keep Brent from failing to report $10K of nonemployee compensation, but he wants $7K of deductions that IRS disallowed.

This brings into play, and before STJ Panuthos, Reg. 1.274-5(T)(c)(3), the longest-running off-Broadway temporary reg.

“’Where the taxpayer establishes that the failure to produce adequate records is due to the loss of such records through circumstances beyond the taxpayer’s control, such as destruction by fire, flood, earthquake, or other casualty, the taxpayer shall have a right to substantiate a deduction by reasonable reconstruction of his expenditures or use.”  Id. subpara. (5), 50 Fed. Reg. 46022. The burden is on the taxpayer to show that the documentation was actually lost or destroyed because of circumstances beyond his control.  See McClellan v. Commissioner, T.C. Memo. 2014-257, at *13.” 2019 T. C. Sum. Op. 31, at p. 8. I missed Oliver McClellan, for whatever reason.

Well, it turns out that Brent can establish his CPA was burned out (Oliver couldn’t prove which hurricane wiped out what), and at least some of Brent’s records went up with the house. But Brent can’t prove how he usually kept his records and specifically what was destroyed.

“Petitioner presented 49 pages of checking account statements with notations providing partial but inadequate details on the business purpose of each expense deduction claimed.  Petitioner’s testimony was vague and unspecific as to the business expenses for meals, events, gifts, and purchases for his mechanic’s shop. Petitioner’s attempts to specifically identify persons and business purposes related to the purported expenses were not sufficient.  While petitioner identified individuals with whom he dined and attended social events, he later indicated that his attempts at identification were speculative and acknowledged that his reconstruction of expenses did not specifically identify the business conducted on these occasions.  Likewise, petitioner’s recall of purchases from music stores, book stores, and other vendors was only general, and it was not clear whether the expenditures were incurred primarily for business rather than personal reasons. Petitioner acknowledged the difficulty in associating any expense paid in [year at issue] with a specific business purpose.  On numerous occasions at trial petitioner indicated that his notations could be inaccurate because he was attempting to piece together his purchases years after charges were incurred.” 2019 T. C. Sum. Op. 31, at pp. 9-10.

And some of the checking account statements contradicts his testimony.

IRS wins.

But again, the self-represented, unless OCD to the max, rarely has decent records to begin with, even before the wind, earthquake, or fire. And there’s rarely a still small voice to help out. Reconstructing while trying to make a living hardly favors reconstructing. Finally, testifying by oneself in court, even if one has been there before, does not make the Top Ten faves among indoor sports.

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