A generation or two ago, self-employed business owners did much, if not all, of their business transactions on a strictly cash basis, immediate or deferred, and bookkeeping records of income and expenses were easily manipulated to their advantage taxwise.
|Joy Young, 1936|
Tax auditors, however, did audit these businesses to try to detect fraud and tax evasion. One defense used by Chinese was 'ignorance' of the American system of doing business. For example, in one case involving the popular Joy Young restaurant in Birmingham, Alabama, a tax audit based on the taxpayer's bank deposit records revealed that sales tax had been underreported by approximately 40% per month during the audit period of several years. The taxpayer's attorney invoked a "cultural defense,"arguing that the "Chinese way" of keeping records differed from the "normal"American method and cannot be held to the normal standard of compliance. An argument against this defense was that as the taxpayer had successfully operated a restaurant since 1919. he certainly knew or should have known he had to keep adequate records for sales tax purposes.
The case was eventually closed after the taxpayer died during the deliberations. As a rule, sales tax must be assessed within 3 years from the due date but the state revenue office failed to do so in this case. Hence, the court barred the assessment by the three year statute of limitations unless the Department proved that the Taxpayer filed false or fraudulent returns with the intent to- evade tax.