Tax Brake with Robert G. Nath, Esq.

Among other things, the Supreme Court said it was nothing new to uphold the IRS authority to make reasonable guesses about income. In fact, the court and other courts have said it's permissible for the IRS to estimate a taxpayer's purchasing record, to estimate income over 77 days based on a 5-day sample, to determine income based on bank deposits, and to estimate income based on “statistical tables reflecting cost of living where taxpayer lived.”

All of these, said the Court, were OK. Moreover, even the dissenting justices said “the courts have viewed the burden on taxpayers to maintain such records as reasonable, and, hence, as the justification for requiring taxpayers to disprove IRS estimates.” That's only fair because the taxpayer not the IRS controls the facts.

The implications of these principles for divorcing and separating couples are clear. YOU, not the IRS, have the burden of proof on estimated costs and expenses. Moreover, even if the IRS were not in the picture, the more exact your records, the better. Precise records on how many days a dependent stayed with you, or what dollars you spent on him/her, are important. Records on expenses for medical care, day care, school “extras” will often be crucial in determining your rights against your spouse and against the IRS (when it comes to claiming exemptions and deductions).

Also, the case re-endorses the use of statistics on living expenses where exact figures are not available. That becomes important when you are trying to prove living expense and you DON'T have good records.

So keep your records, but if there is some problem with those, consider the use of estimates, if based on a reasonable foundation. You can be sure the IRS will do the same.