Cleaning out paperwork is an important part of keeping records. It is unrealistic to keep all records, but when is it okay to start purging important documents? The Supreme Court of the United States (SCOTUS) will provide some clarification in an upcoming case.
Details of the case: shredding records and taking case
This case involves a man that operated a courier freight service. He ran the business on cash. He took cash payments, paid employees in cash and used cash to pay for his expenses. This in itself did not cause concern. However, the IRS accuses him of failing to report this income. He is also accused of failing to keep records. In addition to not keeping records, he is accused of proactively destroying any paperwork that was created.
The IRS attempted to use this information to charge the man with a number of tax violations, including obstruction-of-justice. The man charged with obstruction contends that the charge is unjust because he was not aware of an investigation. In order to succeed with obstruction charges, he argues that he must have known of an investigation and that this knowledge led to the destruction of the tax records.
Essentially, this could support the argument that he was not destroying records to impede the IRS, but that he was simply cutting down on paperwork.
The IRS counters, noting that tax proceedings are unique from other forms of litigation. Unlike most proceedings, “tax administration is continuous, ubiquitous, and universally known to exist.” As such, the agency argues that the destruction of records even without the knowledge of an investigation was a violation of tax law.
A point of clarification: one question amidst other issues
It is important to note that this specific question on obstruction charges does not address other, potentially illegal activity within the case. Additional criminal charges are likely in the event the allegations of taking cash as income and failing to report that income in his taxes are accurate.
Of greater importance to tax law in general is the clarification on the elements needed to support obstruction charges. This clarification will provide guidance to others who are facing allegations of obstruction. Those who find themselves navigating such charges are wise to build the best defense possible. An experienced tax law attorney can help.