In Bauer v. Commissioner, T.C. Memo. 2012-156, the U.S. Tax Court held that a moving truck driver was entitled to deduct expenses to hire contractors to load and unload his truck by estimating the amount of the expenses.
Facts & Procedural History
Mr. Bauer was a moving truck driver. He was hired by clients as an independent contractor and moved their furniture, appliances, and other household goods.
Mr. Bauer was responsible for packing household goods, loading them into a truck or trailer, transporting the goods, and, upon reaching the designated destination, unloading and unpacking the goods.
Mr. Bauer generally hired contract laborers to help pack, load, and unload household goods, appliances, and furnishings and he paid the contract laborers about $10 to $15 per hour, which, per worker, typically did not exceed $600. The payments were made in cash because contract laborers hired “on the road” do not accept any other form of payment.
Mr. Bauer maintained a logbook to record the sums of his expenses for a relocation project, but he did not document the details of how much he paid each contract laborer.
Mr. Bauer did not record the names or Social Security numbers of the contract laborers he employed and did not issue any Forms 1099-MISC, Miscellaneous Income, reporting the amounts paid.
Mr. Bauer filed income tax returns reporting gross receipts of $199,031, $183,865, and $187,773, and contract labor expenses of $55,729, $53,698, and $42,250 for tax years 2006, 2007, and 2008, respectively.
The IRS audited Mr. Bauer’s income tax returns and disallowed a portion of the contract labor expenses.
Mr. Bauer petitioned the U.S. Tax Court to challenge the IRS’s determination.
Mr. Bauer asked the court to apply the Cohan rule to estimate the amount of the allowable expense. To make this estimate, Mr. Bauer presented a report from BizMiner for a sole proprietor’s household goods transport business. The IRS presented the 2006 average contract labor expense ratio for sole proprietors of long-distance freight trucking as reported by BizStats. The court found the BizMiner report to be closer to Mr. Bauer’s business. Thus, the court allowed Mr. Bauer to deduct an estimated amount of contract labor expenses for the tax years at issue using the 2006 average ratio found in the BizMiner report.