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The taxpayer testified that she hired a neighbour, who lived in the building across the street, to look after her children. The neighbour didn’t testify as she had moved back to Ghana about six years previously and had since passed away.

Other than her own testimony and that of her husband, the taxpayer had no evidence supporting the existence of her agreement with the sitter. They did not have a written contract and she paid the sitter in cash, yet she didn’t provide any copies of her bank statements showing the withdrawal of that cash. The Judge found this odd as the amounts that she paid the sitter “were large and represented approximately one-third of her income so I would have expected her to be able to at least attempt to trace those amounts through her bank statements.”

In response, the taxpayer testified that she had had receipts at one time but that she had given those receipts to her tax preparer and no longer had access to them. The taxpayer did not call any witnesses who might have been able to confirm that the sitter had looked after the children.

The judge felt that the taxpayer’s explanation of her payment arrangement with the sitter “did not ring true. It sounded like a poorly thought through explanation that (she) had developed after the fact to justify the amounts she had claimed in her returns.”

For example, to explain the $9,900 amount claimed in 2005 the taxpayer testified that she had paid the sitter $40 per day, which was $200 per week, which was $800 per month, which was $9,600 per year. She then explained that she paid an additional $25 per month to cover times when she ran late. To explain the $12,000 claimed in 2006, the taxpayer said that she had paid the sitter $50 per day, which was $250 per week, which was $1,000 per month, which was $12,000 per year.