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'TAX RECORDS ARE THE ANCIENT EGYPTIANS OF THE MODERN AGE'

December 16, 2005

Russ at Taxable Talk reports on an opinion that a Tax Court judge had way too much fun writing. It involves a guy with a little auto repair business whose recordkeeping seems more suitable for a crack dealer than a legitimate businessman:

He credibly explained that he kept most of his business receipts and records stuffed in duffel bags, which he stored in a loft above his repair shop. He also credibly testified that he was in the habit of employing recently released prisoners, encouraged in part to do so by his father, a retired sergeant in the county sheriff's office. Washington Car's records went missing in 2002, and Cox convinced us that one of his evidently not-quite-rehabilitated employees stole one of the duffels, no doubt thinking it contained cash instead of canceled checks, receipts, and bank statements. (That employee disappeared shortly thereafter.)

In spite of his serious recordkeeping shortcomings, the judge decided that the taxpayer was telling the truth and allowed his deductions despite the missing records. He started out the opinion this way:

Tax records are the ancient Egyptians of the modern age -- plagued not by boils, frogs, flies, and lice but by fire, flood, mold, and theft. The cursed tax records in this case belonged to Raleigh Cox, who owned a business that fixed used cars and then resold them. When audited, Cox failed to produce the records that would have supported many of his claimed business deductions, and blamed their absence on a thieving former employee. The parties have since settled most of these issues, but the Commissioner hardened his heart against Cox's deductions for cash purchases of used cars.

We must decide whether to let them go.

So remember to sprinkle your doorpost with lambs blood so the Angel of Death will pass over your backup tapes.

Cite: Cox v. Commissioner, T.C. Memo 2005-288

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