Missing Receipts to Either Prove Deductions or Respond to an Audit?

Don’t pay more in taxes simply because you cannot find all the receipts to prove your allowable deductions on your tax return, or open yourself up to an IRS audit because you move forward and take the deductions without attaching proof. Lack of documentation or inadequate documentation is the number one reason why the IRS disallows deductions for individual tax filers. In some cases, you can fix the problem with an affidavit and credible evidence of the approximate amount of the expense.


Due to a Supreme Court ruling from 1930, now commonly referred to as The Cohan Rule, the law allows for you to make a close approximation, or estimate, for claimed expenses. The case involved George Cohan, a Broadway theatre manager and producer.  He had no records to prove the expenses he claimed on his 1920 and 1921 tax returns.  The IRS disallowed his deductions. The Supreme Court disagreed, ruling that if you have convincing evidence that you incurred a deductible expense, a court can make an estimate of how much to allow.


When Does the Cohan Rule Apply?


The Cohan Rule is most commonly applied in cases that involve travel and/or entertainment expenses. Items you may be able to use to prove travel or entertainment expenses include your calendar or appointment book, canceled checks or credit card statements that can show gas, airline ticket, or other purchases. You could possibly use online maps to reconstruct your mileage claims, or even your smartphone data, if you have one that tracks and retains your location information using a global positioning system. Accompanying these items with an affidavit make them more credible. An affidavit is a written statement of facts that is sworn to by you in front of a notary public.  It is considered the same as your sworn testimony.


When Does the Cohan Rule NOT Apply?


Since Congress passed strict substantiation requirements in 2006, the courts have been reluctant to apply the Cohan Rule to allow charitable deductions without receipts. The strict substantiation requirements state that you must have a receipt for a charitable contribution even if it is as small as a $20 donation to your church’s collection plate.  And, if your donation is more than $250, you must not only have a receipt but a written statement or other documentation from the charity confirming the donation.


If you are missing receipts that you need to take allowable deductions, or if you are responding to a tax audit of your deductions, the professionals at Nielsen Law Group are ready to assist you. Call (480) 888-71111 or submit a web request here.