What to do if I am being audited by IRS and have no receipts?

Fear not, the Cohan Rule can save you. But what is a Cohan rule and will I be eligible for it?



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Named after the famous Broadway star who gave the world “Give my Regards to Broadway”, George M. Cohan in 1900s was audited and told that he will not be allowed to claim deductions on the expenses he wasn't able to show proof of. It was wrong of him to not keep the receipts but he still appealed this ruling that even though he didn't have the official receipts to prove it, he did incur the expenses and therefore must be given a fair trial. Luckily the courts sided with him which forced the IRS to accept all his estimates of the expenses. Today, the same rule allows many business owners to deduct few of their business-related expenses even when they have no receipts to show that they were incurred.

However, the IRS isn't a fool to allow anyone to use the law for their own benefit. There is of course a catch. Taxpayers will only be allowed to deduct some of their business-related expenses if they are able to show some oral, written or supportive documentation, if not the original receipt. This will serve as a foundation on whose basis a reasonable approximation has been made.

According to the rule, the IRS allows business owners to deduct their expenses that were incurred to run the business and whose receipts can't, aren't, or weren't documented. If you provide sufficient credible evidence, the IRS will have no choice but to deduct those expenses from your tax returns.





source: http://freedomtaxaccounting.com/being-audited-by-irs-and-have-no-receipts/