IRS Rules on Lost Records
Stretch Only So Far
by Julian Block
As a general rule, the IRS okays
deductions by writers for business travel and entertainment expenses only if
those outlays are substantiated by diaries or other "adequate records." But the
IRS does make some exceptions.
Among other things, the feds will
waive the record-keeping requirements and accept a reasonable "reconstruction"
of your records when, according to the agency's administrative regulations, the
loss of your records was "due to circumstances beyond the taxpayer's control,
such as destruction by fire, flood, earthquake, or other casualty." Not
surprisingly, those regulations include a cautionary reminder that whether an
event was beyond a person's control depends on the particular circumstances.
Consider, for instance, what
happened in a dispute over write-offs for travel and entertainment that pitted
the IRS against Joe Gizzi, who acted as his own attorney before the Tax Court.
According to Joe, the government acted unreasonably when the examining agent
refused to excuse him from the usual substantiation requirements. It seems that
Joe had stored records of entertainment expenditures in his home and they
somehow vanished after he voluntarily moved out because of marital problems.
Unfortunately for Joe, that
explanation got exactly nowhere with the Tax Court, which refused to treat the
loss as caused by a casualty beyond his control. "Marital difficulties and their
consequences, no matter how seemingly independent of the taxpayer's will, do not
sufficiently resemble floods or fire to be considered a casualty," the ruling
stated. Moreover, noted the court, even if marital problems provided a good
excuse, Joe failed to furnish an adequate reconstruction of his records.
Subsequently, however, the Tax Court
had some second thoughts. It ruled that marital problems caused the loss to be
beyond the control of Matthew Canfield, who also represented himself before the
court, but did so with more success than Joe Gizzi.
Here, the circumstances differed
considerably. Unlike Joe, Matthew did not voluntarily move out of his home and
leave his records; he departed because his wife obtained a court order requiring
him to stay away from their dwelling. The wife either destroyed or burned his
records during the time the couple was separated, and Matthew was unable to
enter his home because of the court order.
Note, though, that the Tax Court has
no second thoughts where records disappear while a person moves his or her
belongings to a new residence. It flatly refuses to allow reconstruction of such
Still, sometimes the tax takers try
to press things too far. To the surprise of no one but the IRS, the Tax Court
relieved Raymond Jackson of the need to produce records that disappeared after
he handed them over to a revenue agent during an audit. Result: Raymond was
allowed to reconstruct what he spent on entertainment and managed to convince
the judge that the disputed deductions were backed up by the lost records.
Dear Mr. President, Internal
Revenue regulations will turn us into a nation of bookkeepers. The life of every
citizen is becoming a business. This, it seems to me, is one of the worst
interpretations of the meaning of human life history has ever seen. Man's life
is not a business.
---Saul Bellow, Herzog (1964)
Julian Block is a syndicated columnist, attorney
and former IRS investigator who has been cited by the New York Times as "a
leading tax professional" and by the Wall Street Journal as an "accomplished
writer on taxes." His "Tax Tips for Freelance
Writers, Photographers and Artists" explains strategies to reduce taxes for
this year and even gain a head start for future years. Send $9.95 for an
e-mailed copy or $14.95 (in the US) for a postpaid copy to:
3 Washington Square, #1-G
Larchmont, NY 10538-2032
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