By: A.J. Cook


James C. Dunkel quit filing returns after he decided the income tax system was voluntary. But just in case the Internal Revenue Service took a contrary view, he started keeping two sets of books.

At his tax evasion trial, the dentist justified the extra set, which excluded cash receipts. He didn't want the bank to know his income.

With the two sets of books and evidence dug out of a dumpster near Dunkel's office, the government convinced the jury he was guilty. He got three years in prison and five years probation.

The dentist, by now convinced taxes are involuntary, appealed on other grounds. He argued the IRS should have had a search warrant before rummaging through his rubbish.

The upper court ruled against him. "Someone who tosses documents into a dumpster to which hundreds of people have ready access has no legitimate expectation of privacy."

The Moral: The Constitution doesn't protect financial records thrown in the garbage with discarded needles and worn-out teeth.

Earl and Carolyn Cook said they couldn't back up some of their deductions because the IRS lost their records.

The Cooks had taken 15 boxes of receipts, canceled checks, journals and ledgers from their trucking business to an IRS office as directed. Later when Mrs. Cook picked them up, the IRS insisted she sign a receipt. Before doing so she noted one box was missing.

When the IRS disallowed deductions because the couple couldn't confirm them, the Cooks complained that the agency lost their records. The IRS insisted it had returned all the boxes.

Even assuming the IRS lost the records, the court affirmed the disallowance. Just because the records are lost doesn't mean the Cooks are relieved of any burden to document their deductions, the judge said. They should have supplied substantiation by other means.

THE PLANNING TIP: If your records are lost, destroyed or stolen, you can verify deductions from other sources. For support, use check stubs, credit card receipts, letters or copies of invoices from suppliers, copies of canceled checks from the bank, estimates based on prior years' deductions.

A.J. Cook is a lawyer and CPA. His tax column appears weekly in numerous newspapers. Why isn't it published in your hometown newspaper? Ask its Business Editor to subscribe.

Copyright © 1987-2001 A.J. Cook All Rights Reserved
This information is not intended for use without professional advise.
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Released 7-4-94