Perry Mason and Tax Law
Those of you who remember Perry Mason episodes on TV will recall how the public prosecutor, Hamilton Burger, had to prove his case beyond a reasonable doubt. If he didn't, the defendant was acquitted.
Many think the same logic applies to tax law. In other words, the Secretary, if you are in the US, or the Minister, if you are in Canada, has to prove the case against you. If they can't, tough cookies, you keep your money.
In tax law however, there is a reverse onus.
The Minister or the Secretary in the form of a civil servant is entitled to make whatever assumptions he or she pleases. The taxpayer then has to demolish these assumptions on a standard of proof called a 'balance of probability'.
This is a lower threshold of proof than criminal law, but the operative words are 'proof'. Your statements as to what happened will not amount to proof and you are expected to lead evidence. In the United States this is part of the Tax Code. Canada is slightly more understanding and will accept verbal statements under some circumstances.
To 'lead evidence' means to introduce evidence. The best evidence is 3rd party evidence, independent of you. Examples are bank statements, letters from business associates, day-timers and so forth.
We are also subject to the rules (actually law) of evidence. Although somewhat relaxed, they are still operative. For example, if you tell an Auditor, "I made no money", that statement is admissible as evidence by him or her in some later proceeding. What usually happens is that tax payers make statements more or less indicating that they do not have any supporting material. They might also expect the Auditor to take their word that certain events actually took place. Courts in Canada will admit statements from tax payers provided other evidence does not contradict their statements and there is some other evidence in support of the statement. The United States has a much more rigorous standard of evidence.
Most auditors will give you a copy of their working papers, which show the reason for their decisions. However, some don't. Remember to always ask for all the copies of any documentation that has been generated about you or your business activity. If you don't think you have all the information that was generated concerning your circumstances, let someone know. The government can be compelled to provide this information.
