What To Know About Being Audited by the IRS if You Don't Have Receipts
Filing tax is stressful enough, from having to figure out how to fill out forms to getting the right documentation. If you're being audited, the IRS will want to see a trail of paperwork -- aka receipts. What happens if you don't have them? Turns out, the Cohan Rule may help you. Though there are no guarantees, of course.
According to Forbes, the Cohan Rule was the result of a well-known case called Cohan v. Commissioner. George M. Cohan won the trial when the IRS didn't allow him to include his travel and entertainment expenses as legitimate business expenses and he didn't have receipts to show for it. In a nutshell, the rule means that taxpayers can prove expenses or deductions using other forms of legitimate evidence if there aren't receipts.
But should you risk not having receipts on hand in case you're audited? Let's explore.
A Reality Check
Proving you have legitimate expenses may be difficult without receipts, but it can be done. H&R Block suggests that you first retrace your steps as best as you can. For example, look at your bank or credit card statements from pharmacies or online stores to find relevant medical expenses. Or see what types of expenses the IRS is willing to give you some flexibility on, like business dining.
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It might take some time to retrace your steps and reconstruct your expenses and where you spent them. Starting as soon as possible will help you to get what you need to the IRS on time. Try your best to come up with as many records as you can, or at the very least, explain clearly to the IRS what the deduction is for if you still can't find the original receipts. H&R Block says that if you don't have enough records and the IRS rejects your records or explanation, you could be on the hook for a 20% IRS negligence penalty.
Looking at expense records can feel daunting. The good news is that you can hire a professional to help you. The cost may be worth the peace of mind and the increased chance you'll avoid the IRS penalty.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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