The IRS Doesn’t Keep Receipts – the Irony and the Reality.

The controversy involving the IRS continues to stir with the most recent revelation being the exorbitant amounts of money spent by the IRS on conferences, particularly for its self-employed and small business units. It spent more than $49,000,000 over three years on over 2,000 conferences, including some very expensive training videos.

The irony in the most recent revelation is that the Treasury’s Inspector General dealing with IRS recently issued the report but was unable to establish the exact amount of expenses because the IRS had failed to properly document all expenses.

So if the IRS doesn’t fully document its expenses then you may be tempted to ask – “do I need to?” The answer unfortunately, is a resounding “yes!” The IRS is a huge bureaucracy subject to administrative oversight and this debacle will eventually blow over with some changes in personnel, etc. but without any real financial impact to the IRS. Further, the IRS is not a for-profit entity (at least it’s not supposed to be) so the impact will ultimately be shouldered by me and you, the taxpayers.

When the IRS comes looking at expenses reported on our tax returns, they’ll want proof at some level that the expense occurred, what its purpose was, and what the amount was. That’s settled law and it’s supported by a long list of policy and court decisions. There’s lot of flexibility in how those requirements are met but there has to be some basis for making a claim in order for it to be supported.

What this highlights is that the unfortunate and ironically unjust reality is that the IRS is judged by a different standard than you or me. Their record keeping ability is suspect at best. Their books haven’t been balanced for decades. And the most recent revelation shows that they can’t even fully document expenses. But that won’t help either of us in an IRS audit.

So for now, make sure to keep good records. Pay attention to the ins and outs of your personal and business bank accounts. Observe good procedures and create a paper trail of what you do. There’s little satisfaction in knowing that your records are better than the IRS. But you’ll feel more than good if you ever find yourself in a position where you need to justify expenses and you’re able to provide your tax attorney all the information necessary.

By: Evan A. Nielsen (Licensed in California)