EvidenceProf Blog

Editor: Colin Miller
Univ. of South Carolina School of Law

Monday, November 4, 2013

A Taxing Matter: U.S. Tax Court Finds Taxpayer Failed to Satisfy Best Evidence Rule

Federal Rule of Evidence 1002, the Best Evidence Rule, provides that

An original writing, recording, or photograph is required in order to prove its content unless these rules or a federal statute provides otherwise.

That said, a party can also satisfy the Best Evidence Rule by producing a duplicate under Federal Rule of Evidence 1003 or accounting for its nonproduction of the original under Federal Rule of Evidence 1004. So, what happens when a party fails to comply with any of these Rules? Let's take a look at the recent opinion of the United States Tax Court in Phillips v. C.I.R., 2013 WL 5827656 (U.S.Tax.Ct. 2013).

In Phillips, the IRS  determined a $3,040 deficiency in Roger Phillips's 2007 Federal income tax, a $684 addition to tax pursuant to section 6651(a)(1), a $501.60 addition to tax pursuant to section 6651(a)(2), and a $136.77 addition to tax pursuant to section 6654. In response,

Mr. Phillips assert[ed] he had a business loss of $53,518.28, a capital loss of $3,000, and itemized deductions of $21,420.62 in 2007. As a result, Mr. Phillips assert[ed] that these losses and deductions completely offset the income respondent determined in the notice of deficiency. Thus, Mr. Phillips assert[ed] that he owe[d] no tax.

The problem from Phillips, however, was the Best Evidence Rule. Accoridng to the U.S. Tax Court,

Various rules govern what is acceptable proof of deductions. Rule 1002 of the Federal Rules of Evidence requires an original document in order to prove its content. Rule 1003 of the Federal Rules of Evidence generally permits duplicates unless a party raises a genuine question as to the original's authenticity. If a taxpayer can establish that he once had adequate records but lost the records because of circumstances beyond his control, such as a fire, flood, or other casualty, then the Court will permit the taxpayer to reasonably reconstruct his expenses. Rule 1004(a) of the Federal Rules of Evidence permits other evidence of the contents of a writing, such as testimony, when “all the originals are lost or destroyed, and not by the proponent acting in bad faith”. Before trial Mr. Phillips did not produce any original documents or photocopies of original documents that could substantiate his claimed losses and deductions. At no time has Mr. Phillips alleged he lost any of his records or that any of them were destroyed. Rather, he prepared many of his own documents or provided altered copies of documents to respondent, apparently believing that these documents would serve as duplicates for the originals he was unwilling to provide.

The court found that this secondary evidence was inadmissible and that he was thus "not entitled to any deduction not permitted by the notice of deficiency."



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