Posted by Thomas G Kinsella, ATP

Help – I Have an IRS Audit & I Have no Receipts

Help – I Have an IRS Audit & I Have no Receipts

The worst and last correspondence anyone expects from Uncle Sam is a notice of audit. It gets pretty complicated if there are no records like receipts and documentation of any sort to prove.

It is normal to be stressed if you are in this situation, and this article will be of great help. You need not flee to Africa or quit your business, as this article will talk you through how to survive the ordeal.

Avoid Hiding from an Audit 

The last thing you should do on getting the notice for an audit is to hide from it. There is no magic that can exonerate you if you are the target of an IRS audit. The best line of action is to start taking the step to get out of the mess. 

When having an audit, Uncle Sam can check your income tax return from the last three years. The presence of any error can make them go back and consider other tax returns. 

While getting out of an audit is near impossible, you might be able to stall the process in a bit to organize yourself. As long as your reason is valid, Uncle Sam will grant your postponement request:

  • Gathering your records will take you more time.

  • Getting legal representation will take you more time

  • The date of the current audit is not comfortable for your tax professional

  • There is a huge commitment you have at the audit period, and rescheduling isn't possible

  • There is a medical issue that makes it impossible for you to function at an audit.


Missing Financial Records and an IRS Audit

The first point of consolation is to know that you are not the first person to have an IRS audit with an imperfect financial record. In an ideal world, all businesses will have immaculate records that would be ready at an instant's notice. In the real world, however, many business owners do get behind on their record keeping.

Incomplete or missing records are so common during audits that the US Tax Council put forward a rule that taxpayers can recreate expenses when they do not have the direct records. It is called the Cohan Rule.

According to the Cohan Rule, when taxpayers do not have receipts or other definite proof of business expenses, they can create estimates for business expenses and use them to claim tax credits and deductions. Such an estimate, however, must be reasonable. 

As a result, if you are trying to estimate the value of a copier machine that you purchased for your business, the idea is to employ the market value of the specific model of the copier to set the value. 

Without a doubt, the Cohan Rule does provide a way out if you have no means to prove your business expenses; however, it should be a last resort. You cannot apply such a rule to travel costs, gifts, entertainment expenses and some properties. 

Get All Your Evidence 

In the absence of a receipt, some legal work might turn up a couple of helpful pieces of documentation to prove your business expenses. The following discusses practical methods to reconstruct your payment and records:

  • Contact vendors and Suppliers for Copies of invoice and Receipt: With a digital cloud system and connected sales point alongside invoicing systems, many companies now keep records of purchases for years. This also applies to charitable contributions to an organization. 

  • Examine Your Bank Account and Credit Card Statements: A line on your bank statement is better than having nothing to defend yourself when Uncle Sam comes knocking.

  • Check your appointment book and Calendar: the ability to detect where and when you made a business purchase can give you a head start.

When you have no way at all to get a receipt or any other valuable record for something you got for your business, there is the last approach you can use. All you need to do is snap the item, jot down all you remember about the time and place of the purchase, alongside how much you believe you paid. 

For new items, check the store's print or any catalogue they might have online and screenshot the price. For used items, check the price of related items on Craigslist to determine the item's market value.



Thomas G Kinsella, ATP
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