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🚨 IRS Audit But No Receipts? Here’s What You Need to Know 🚨

🚨 IRS Audit But No Receipts? Here’s What You Need to Know 🚨

If you’re in the middle of an IRS audit and realize you’re missing receipts for some of the expenses they’re reviewing, you’re not alone — and you’re not necessarily doomed.

Here’s the deal: The IRS expects you to substantiate every deduction you claim on your return. If you can’t provide documentation — like receipts, invoices, or logs — those deductions can be disallowed, potentially increasing your tax liability, plus interest and penalties.

But there’s an important (and often misunderstood) exception that may help:
The Cohan Rule.

🧾 What is the Cohan Rule?
Named after Broadway legend George M. Cohan, the Cohan Rule stems from a 1930 court case where Cohan couldn’t produce exact records for his business expenses. The court ruled that if a taxpayer can prove an expense likely occurred, but can’t establish the exact amount, the IRS (or more likely, the Tax Court) may allow a reasonable estimate.

This rule can be a lifesaver when records are incomplete, but it’s not a free pass. You still need credible evidence — such as bank statements, calendar entries, emails, or travel logs — to show that the expense was real and had a legitimate business purpose.

❌ Important Caveat:
The Cohan Rule does NOT apply to everything. For certain deductions like meals, travel, entertainment, and vehicle use, IRS Code §274 requires strict substantiation. No receipts = no deduction — no matter how convincing your estimate.

âś… What You Can Do Without Receipts:

  • Reconstruct missing records by contacting vendors or pulling bank/credit card statements.
  • Gather supporting evidence: calendars, emails, appointment logs, etc.
  • Provide a detailed, good-faith estimate — especially if expenses were recurring or predictable.
  • Include written statements or affidavits where appropriate.
  • Consider working with a CPA or tax professional to help present your case clearly.

đź’ˇ Best Practice Going Forward:
Always digitize your receipts, store them by category, and back everything up — especially for any expense tied to tax deductions. Tools like QuickBooks, Expensify, or even a dedicated receipts folder in your phone can make this easy.