Surviving an IRS Audit with Missing Records

Facing an IRS audit can be stressful, and missing receipts might make it feel even more overwhelming. But remember, not having every piece of paper doesn’t mean you’re out of options.

The IRS values proof, and there are ways to support your claims even if you don’t have the original receipts.

Why the IRS Wants Receipts

Receipts are the simplest way to verify deductions. They show the amount, date, and purpose of an expense.

During an audit, IRS agents use them to confirm that your tax return is accurate. If receipts are missing, the IRS will expect you to provide alternative evidence that your expenses were legitimate.

What Happens If You Don’t Have Them

If you can’t back up an expense, the IRS might not allow it. This would boost your taxable income, which could mean more tax owed, plus interest and penalties.

For big deductions, the numbers can add up fast. In rare instances, if the IRS thinks deductions were made up, things could get worse. For most people, though, the real challenge is proving expenses with solid documentation.

Acceptable Substitutes

The IRS doesn’t require receipts alone. Other types of documentation can be acceptable if they demonstrate the nature, timing, and amount of an expense.

You can also request duplicate invoices or receipts from vendors or banks. The more evidence you can provide, the stronger your case will be.

Helpful alternatives include:

• Bank or credit card statements that detail when and where you spent money.
• Invoices or bills from vendors or service providers.
• Mileage logs or travel calendars to support vehicle and travel deductions.
• Digital receipts or emails from online purchases.
• Appointment books or phone records that corroborate business activities.

The Cohan Rule

When receipts are missing and reconstruction is difficult, the Cohan rule can assist. This tax law precedent allows deductions based on reasonable estimates if you can demonstrate that the expenses were actually incurred.

Courts have accepted credible testimony, calendars, and partial records as sufficient to justify a portion of the claimed expenses.

Keep in mind, though, that the IRS won’t accept vague estimates. You need to have some solid basis, even if it’s just limited documentation, for an estimate to stand up. And usually, auditors only accept the portion they consider reasonable, not the full amount claimed.

Why a Tax Attorney Can Make A Big Difference

Trying to handle an audit without receipts is tricky, and this is when professional representation is invaluable. A tax attorney knows what kinds of substitute documentation the IRS accepts, how to present evidence persuasively, and when to invoke the Cohan rule.

Just as important, an attorney can deal directly with the IRS on your behalf. This prevents you from saying something that weakens your case or accidentally providing more than you should. If penalties are proposed, your attorney can argue for reduction or removal.

And if your situation is especially complex, for example, a business with years of incomplete records, having an advocate who knows IRS procedure can protect both your finances and your peace of mind.

Final Answer

Not having receipts isn’t a deal-breaker in an IRS audit, but you’ll need a solid plan. Collect all supporting evidence you can, including bank statements and mileage logs. Where possible, rebuild lost records. Apply the Cohan rule to support reasonable estimates. Most importantly, consider getting expert assistance.

Reach out to Todd S. Unger, Esq. for a confidential discussion. With a background in handling IRS audits for individuals and small business owners, Todd can walk you through the process, support your deductions, and help you get the best possible result.