Whether clients run a business formally or informally, the IRS requires they keep adequate records for income and expenses, otherwise a visit to the Tax Court may be in their future to sort things out.
In a new case, Nurumbi, 2021-79, TC Memo 2021-79. 6/30/21, an Uber driver ran afoul of the rules, but at least was able to salvage some deductions in Tax Court.
Participants in the so-called “gig economy” ranging from drivers to temporary landlords to delivery services people are generally treated as self-employed individuals. In this capacity, the income they receive is fully taxable, but they may be entitled to deduct qualified business expenses to offset part of the tax. In addition, the participant is liable for self-employment tax, but can write off half of the tax on their personal return.
Facts of the new case: The taxpayer, a resident of Arizona, used his Uber account and mobile application to provide transportation to passengers in exchange for fares. But he wasn’t the only driver using the account during the tax year at issue.
Notably, the taxpayer recruited friends and family to sign up for Uber under his account. They rented his vehicles, which he had purchased using car title loans or at auctions.
The drivers could access the Uber app to see their trips driven and fares collected, but all fare proceeds (net of Uber’s fee) were paid directly to the taxpayer’s Uber account. There were no written contracts between the taxpayer and the other drivers.
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