Tax time rolled around, and I figured I should include it in my taxes, because I didn't have current contact info and wasn't sure whether the person reported the income in any way. I filed a Schedule C with a modest amount of reasonable deductions for some office supplies and things that I had receipts for. It barely changed my tax bill, and I figured it was worth it for the insurance against the IRS realizing that this person had paid me.
My IRS refund showed up right away. My Massachusetts one didn't, however, and I couldn't get anyone to tell me anything. Just that it was "still being processed" and no explanation as to why this was taking several weeks. Finally, I got a letter that I was being audited. The letter specified that it wasn't random audit, but was due to unusual circumstances in my Schedule C, and I needed to send them proof of everything claimed. I thought this was odd, having reported around $1000 in income and $100 in expenses -- alongside myself and my spouse reporting other W-2 income that put us in a "normal-not-likely-hiding-anything" income bracket. Regardless, I sent them receipts for my expenses, along with a printout of the transfer showing up in my bank account for the same amount I'd listed as my gross receipts.
Keep in mind, this is a state tax return for a working-class family. All this is over a refund of $600 or so, and the documents that are in question would actually have me receiving a slightly larger refund had I not filed that Schedule C.
Several more weeks pass, people on the phone will only tell me it's "still being processed." Someone finally calls me, and says my proof isn't sufficient. I ask them what specifically they're referring to. They say that the receipts for expenses are fine, but it isn't sufficient proof that I received the money. Grasping at straws, I fax the person a screen capture of a text message between me and the other party, in which we talk about how long I spent on the project, how much I want, and the other person agrees to it. I also sent a screen capture of the online payment system we used showing the payment.
The next time I talk to the person at the Department of Revenue, he is hesitant and won't give me a straight answer as to whether my documentation is sufficient. He gives me a passive-aggressive lecture about record-keeping, and that I really ought to have some sort of a contract or something. He doesn't seem to like my explanations that this is only a "business" for tax purposes, is not my actual line of work, and isn't any sort of line of work that's regulated in terms of having books that can be audited or anything like that. I finally ask him, "so, if you decide my record of having received this money is insufficient, will you forbid me to pay taxes on it?" at which point he actually starts laughing and says something about having not run across this before, and tells me that my refund will be processed shortly.