What Happens If You Get Audited and Don’t Have Receipts?
Discover how to manage an IRS tax audit when receipts are missing. Get practical advice on documentation, interaction, and outcomes.
An Internal Revenue Service (IRS) audit reviews financial records to verify tax return accuracy and ensure compliance with tax laws. A common challenge during an audit arises when taxpayers lack complete documentation, such as original receipts, used to substantiate claims.
IRS Requirements for Substantiation
The IRS expects taxpayers to maintain comprehensive records that support their income, deductions, and credits reported on a tax return. The burden of proof rests on the taxpayer to substantiate all claims and demonstrate accuracy.
Taxpayers should retain records, including receipts, invoices, canceled checks, and other documents confirming financial transactions. For expenses, documentation should identify the payee, amount, payment date, and a description of the item or service received, confirming its business purpose.
The IRS generally recommends keeping records for three years from the date a return was filed. If a taxpayer substantially underreports income by more than 25% of their gross income, the retention period extends to six years. Records related to property should be kept until the statute of limitations expires for the year the property is disposed of.
Strategies for Missing Documentation
When original receipts are unavailable, taxpayers can explore alternative forms of proof to substantiate tax deductions and credits. The IRS permits various documentation types beyond traditional paper receipts, provided they support the transaction’s amount, date, and business purpose.
Financial statements, such as bank and credit card statements, serve as evidence of payment. These, along with canceled checks or digital payment confirmations, verify that a transaction occurred and the amount paid. While they may not provide all the granular details, they establish a payment trail.
Taxpayers can also reconstruct records through other means, such as detailed logs, calendars, and photographic evidence. A meticulous mileage log can substantiate vehicle deductions, even without fuel receipts. Written records, emails, or affidavits from third parties can corroborate expenses.
Navigating the Audit Without Receipts
Receiving an audit notice from the IRS, typically via mail, initiates a process requiring a timely and organized response. The notice specifies the tax year under review and the items questioned. Read the audit letter carefully to understand the scope and requested documentation.
Taxpayers generally have about 30 days to respond to an audit letter; an extension can be requested if more time is needed. When responding, address each questioned item directly and provide the alternative evidence gathered. Sending only copies of documents, rather than originals, is a standard practice, with a cover letter summarizing the submitted materials.
During the audit, whether by mail, at an IRS office, or at the taxpayer’s location, present reconstructed records and alternative documentation in an organized manner. Focus on how each piece of evidence supports the original tax return claim. Provide only information directly requested.
Understanding Audit Outcomes and Rights
If documentation, even alternative forms, is deemed insufficient by the IRS, several outcomes are possible. The most direct consequence is the disallowance of deductions or credits that cannot be adequately substantiated. This disallowance results in an increase in taxable income and, consequently, additional tax liability.
Beyond the additional tax, interest may be charged on the underpayment from the original due date of the tax return until the balance is fully paid. The IRS sets interest rates quarterly, typically at the federal short-term rate plus three percentage points, and this interest compounds daily. Furthermore, penalties can be assessed, such as the accuracy-related penalty, which is generally 20% of the portion of the underpayment attributable to negligence, disregard of rules, or a substantial understatement of income tax.
Taxpayers have important rights throughout and after the audit process. If a taxpayer disagrees with the auditor’s findings, they have the right to appeal the decision. This appeal is typically initiated by filing a written protest within 30 days of receiving the IRS’s findings. The IRS Office of Appeals provides an independent review, aiming to resolve disputes without requiring court involvement.