The Burden of Proof is on You

In July, a NYS Division of Tax Appeals determination illustrated this point. The case involved a married couple who were audited by New York State. As a result of the audit the state rejected certain deductions that the taxpayers claimed on their jointly filed personal income tax return. The taxpayers went to court to get relief but were denied because they could not provide evidence to support their position.

Casualty loss deductions and employee business mileage were the deductions in dispute. The court noted that the IRS has very specific rules on the type of documentation that a taxpayer needs in order support these types of deductions. For casualties you have to prove that there was a loss in the first place (prove that you were robbed, that you suffered a fire, etc.). After that, you have to provide documentation supporting the dollar amount of the deduction. Then, you have to be able to prove that the loss was not covered by insurance. Business mileage deductions require contemporaneous records that document your driving. The records should include details such as time, date, business purpose and miles driven.

One last thing to bear in mind is the relationship between the federal and state tax return. If you claim a casualty on your state tax return, the state will want to a copy of federal form 4684 (which should have been filed with your 1040). If you claim mileage, the state will want a copy of federal form 2106.

For more information, contact our office.

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