Paper Audit

[BOB W]

Casual Labor was deducted on 1040 Schedule A misc. The taxpayer is a route driver and picks a helper 2 days a week for handling the heavy loads. This helper is very seldom the same person as various people shape up at the loading dock for all the route drivers, who need help, to pick from. No one gets paid $600 or more per year, thus no 1099. All helpers were paid cash.

I have to write up an explanation of this expense for the auditor's mail-in paper audit. Does anyone have any opinions or warnings to offer me. Total expense was $10,400.

[DonPriebe]

Lumpers

I just did a Google on lumpers. It seems that they are quite expensive! http://www.skaggmo.addr.com/lumpers.htm

[BOB W]

I've been ......

..... reading up on casual labor and the IRS feels it is subject to withholding regardless of the lenght of employment. If I could show that these people are independent contractors ( they do the same work for many other routeman) maybe that may pull them out of the employee catagory. The only other thing I need is to show is lack of control.

Added: This seems to be standard practice in the industry that has been going on for years. I will look into a safe harbor on this.

[BOB W]

This is.........

... what my first draft looks like. Any advise?

The nature of the Casual Labor expense comes from the loading docks where various self employed individuals shape up to see if they can help the route salesman handle the heavy loads for that day. These individuals are always different on any given day, so no individual that preformed a service for me was paid enough to issue a 1099. There is nothing I need to say to them as they know what to do, it is their business. I mark my log book noting the expense along with my other cash expenditures for the year.

I have been told that this casual labor arrangement has been going on for decades and that Sect 530 Safe Harbor allows this expense to be considered as an independent contractor expense due to the long standing nature of the relationship in the industry.

[Gene V]

Bob, The IRS MSSP on Trucking Industry Chapter 5, might be of some help in deciding if the helpers are Independent contractor or employees, the court cases on page 13-15 in Chapter 5 leans more toward employees.

http://unclefed.com/SurviveIRS/MSSP/truck.pdf

[BOB W]

Gene.....

.... thanks for your post.

My biggest problem will be proving that no one individual rec'd $600 or more during the year. I guess his log book will have to accomplish this. Failure to file 1099s will void any 530 Safe Harbor.

[Jiggers]

Was route driver paid with W-2 income?

Was the route driver paid with W-2 income? I assume that since the labor that he hired was deducted as a Schedule A item, subject to 2% haircut.

If so, he is not in a trade or business, and does not have to issue 1099's.

Now if this is an employee business expense that is not reimbursed by his employer, is it required by his employer that he hire these helpers?

[BOB W]

Yes,

he is a W-2 employee but is required to incur certain expenses that are not reimbursable expenses. The employer does not require the driver incur expenses for helpers. Each driver has to build his route at his own expense. The relationship, if it was a milk delivery route, would be a statutory employee, but it is not.