From Strictly Legal section of How You Can Avoid Legal Land Mines by Joseph S. Lyles (2003)

Many people like to make transactions in cash. Cash is easy to use and, of course, easy to hide. It never bounces like a check, and it doesn’t have to go through the banking system before you can have access to it. But the very aspect that makes it so attractive can be a drawback; it is difficult to document. If you pay cash for something and don’t keep a receipt, you can have trouble proving the purchase.

For instance, if your income is primarily paid in cash, you can have difficulty proving loss of income in a personal injury claim. Likewise, if your spouse receives the bulk of his or her income in cash, you will find it almost impossible to prove that income in a family court case.

Obviously, many people who function primarily in a cash economy fail to claim the cash on their income tax returns. If they are involved in a court case and income is an issue, the other side will subpoena their tax returns. If they have not reported their income on their tax returns, they are going to find it almost impossible to establish a claim for loss of income, and their failure to pay taxes will be embarrassing, at the least.

Therefore, you need to be aware that with all the benefits of cash transactions, there are some drawbacks. You might say that cash is a double-edged sword; it cuts both ways. Its lack of a paper trail can be helpful or harmful.

The Lesson: You need to be aware of the pitfalls of cash transactions and get written receipts when possible.