Russell E. Barrios v. Comm., TCM 2023-32
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Non-Filer Cannot Rely on Profit and Loss Statement to Substantiate Expenses (Russell E. Barrios v. Comm., TCM 2023-32)
Mr. Barrios failed to file his 2011 tax return. The IRS prepared a substitute for return under §6020(b) and a notice of deficiency was issues. Barrios presented a CPA-prepared Form 1040 and a profit and loss statement at trial in an effort to substantiate more expenses than the IRS was allowing. He did not provide any source documents and relied upon testimony from his CPA, who claimed to have verified the amount on the profit and loss statement. The CPA testified that “he supervised the preparation of the statement by discussing with [petitioner’s] bookkeeper her general approach as to the inclusion and categorization of 2011 expenses and then spot-checking her work.”
The Court was not persuaded that the CPA’s confidence in the bookkeeping behind the proffered profit and loss statement was sufficient to substantiate the nature, amount, or purpose of any of the claimed expenses.
Comment: The fact that two lack of proper substantiation cases – Mitchell and Barrios – were released on the same day is merely coincidence.