Nine Schedules C?

[LPC]

This is off-topic, but it's kind of crazy and I can't think where else to put it.

I happened to run across a 11/2010 Tax Court memorandum, Sharon Louise Griffin v. Commissioner, T.C. Memo. 2010-252, and it makes no sense. I don't mean that the opinion makes no sense, but that the taxpayer makes no sense.

Briefly, the years in dispute were 2001-2003, during which the taxpayer reported about $70,000 each year from part-time work as video technician. The returns also included NINE schedules C covering a delivery service, video production, janitorial maintenance service,
computer repair service, handyman service, landscape maintenance service, parking lot maintenance/steam cleaning service, consulting service, and notary/process server service. Those business supposedly grossed almost $2.9 million over those three years, and yet she claimed to have not made a profit. But those labor-intensive businesses had no payroll records and issued no 1099s.

To give you a flavor of the opinion, this if from page 29:

5. Commission Expenses

Griffin claims to have incurred cash-commission expenses. But her vague testimony regarding such payments and her supporting documentation are not credible. She provided summaries at trial with over 800 handwritten “cash receipts” per year as backup documentation. Based on the receipts, she never paid the same person more than once. The payees never signed the receipts, and some of them had very unusual names.[17] Moreover, no contact information for any of the payees was provided. Even if we were to admit this evidence, we wouldn’t believe it.

[Footnote]17 In Griffin’s records, for example, the name “Xander” appeared five times and “Zander” appeared six times. They were presumably different people because each Xander or Zander had a different surname. According to the Commissioner’s investigation, there are very few Xanders or Zanders in the entire state of California--about 85 Xanders and 95 Zanders. Griffin either had an uncanny ability to find Xanders/Zanders, or her cash receipts are unreliable evidence. We do not believe the former possibility.

What's weirdest of all is that, not only did she have no records of any expenses (and very little recollection of who she paid for services), but she also had no records of any income. It was all cash, and she never deposited any of it into any bank, so there would have been no way for the IRS to have reconstructed her income if she hadn't reported it.

So what the hell was she doing? Was she really running nine cash-based businesses in which she carefully recorded the money she received without bothering to keep track of who she was receiving money from or paying it to? If not, then why on earth did she report what she reported? Is she daft?

Totally weird.

[Quixote]

Millions of dollars flowed through these businesses, but Griffin
claimed enough expenses to eliminate any taxable income.

Apparently, she was attempting to offset her wage income with fake business loss deductions. She just wasn't very good at it. Maybe she thought a single Schedule C showing a $70,000 loss would look suspicious. Of course, so would 9 Sch. C's.

[notorial dissent]

My inclination is to discount not only the handwritten receipts as did the tax court, but the rest as well. I think she made it all up out of whole cloth, as Quixote pointed out, to offset her wages with fake business expenses, but as with you, I don't see why she went to such elaborate and poorly done lengths to do so. I just don't see how it is possible for her to have had the income she is claiming when her only provable source of income is from her part time work, or why she would be working part time if she had that kind of income, and more to the point how she could have that kind of income and not leave some kind of "real' record of it, that is way too much cash to not leave some kind of record somewhere. I think it is all fabrication. The problem, that I see, if that fabrication is taken at face value, then she is liable for a huge chunk in taxes and an even larger collection of fines and penalties for not properly reporting any number of things.

[LaVidaRoja]

I remember reading this case when it came out. My initial impression was that she likely DID have roughly that amount of income, but that it was not from legal sources. She attempted to offset all of her illicit income rather than merely diminishing it to a slightly believeable level At least, that was my take on it

[jg]

Illegal income was my first thought as to why anyone would attempt to report such large amounts of cash income and yet not have records of receipts or disbursements and be unwilling or unable to identify customers or suppliers.

There is mention that the examiner allowed about $800,000 of business expenses for the three years

11 The Commissioner allowed the following Schedule C expenses in the original audit: advertising, insurance, legal and professional, office expenses, rent-machinery, rent-other property, repairs, taxes/licenses, meals and entertainment, and utilities. The record fails to reflect why.

None of the above can claim that there was any clear thought process about what the reporting actually would represent or how it would possibly have any credibility.

Just one man's opinion, yours may vary significantly.

[Gregg]

Looks to me like she was running an escort service. Really.

[rogfulton]

At least she reported it without claiming 'sovrunty'

[grixit]

Looks to me like she was running an escort service. Really.

I can see her having a closet full of outfits for all of those businesses she claims.

"I'm here to

clean the floors!
/cut the lawn!
/fix the leak!
/serve a summons!

Oooh, it's so warm in here!"

*Bum budda wowwow!*

[bmielke]

When I read this, most of it seemed like you could lump household chores in to the "Business". My thought is that this might be an expansion on the old "Home Office Deductions", "oh I spent an hour cleaning, I will charge myself $20 for it and pay myself $20 and spend 10 on supplies." that sort of thing.

[Pantherphil]

What is the bottom line assessment here?

I'm thinking that since the taxpayer essentially conceded $2,877,000 gross income and almost all of the deductions were disallowed and the taxpayer got dinged with the failure to file penalty plus the accuracty penalty plus statutory interest, the final assessment must be humongous.

But the more compelling question is whether she has any treasures squirreled away in the "Jungle" which the IRS can actually collect.