In 1994, tax payments were made to the NYC Department of Finance for several parcels of real property by a client. In 2001, unbeknownst to the client, the Department of Finance unilaterally reversed the payments made, added interest, created tax liens, and bundled up the liens for public auction sale.
My firm commenced an action against the City of New York in 2002, after learning of the tax lien sales, to declare that the payments made in 1994 had truly been made, and that the Department of Finance acted without authority in reversing the credits. Luckily for the client, he saved the receipts issued by the Department of Finance when he made the payments in 1994 (which receipts are stamped onto the tax bills and actually given to the taxpayer).
The case culminated with the City of New York agreeing to reverse all of the unauthorized charges in 2001, reversing the tax lien sales, and clearing the tax delinquencies on the client’s account. A win!
What does this teach? The importance of retaining proof of payment in various situations. Here, proof of payment was crucial in winning the case.
Common proofs of payment include a check or credit card statement showing that the bill was paid. Other forms of proof may be a store receipt, credit card receipt, or paid invoice. If cash is tendered, a signed receipt should be obtained.
The general rule of thumb is that most business records should be maintained for safekeeping for seven years. Many advocate saving records for much longer, if feasible given space considerations.
The ability to prove payment of a debt or bill comes in handy in various situations, including:
1. Many parents pay the custodial parent their child support payments by cash. Sometimes, the custodial parent has kept poor records and will allege non-payment. The burden of proving payments will fall upon the person charged with making the support payments.
2. Distribution companies, such as food wholesalers, will have the drivers pick up payments at the time of making delivery of goods. The driver may not account for the payments and the store will be forced to show payment of the invoices.
3. Tenants of smaller rental buildings or two-family houses will pay the landlord (who generally lives at the building) by cash and fail to obtain a rent receipt. Afterwards, the landlord may commence an action for non-payment in the Housing Court and the tenant will be without proof of payment of the rent.
Since the general burden of proof of payment falls upon the person liable for the same, it is crucial that proof be obtained at the first instance and maintained. This will ensure that later mistakes or intentional denials of payment are disproved.