What If You Don’t Have Receipts for an IRS Audit?

Many taxpayers assume that a lost receipt automatically means a lost deduction, but this is not the case. The Internal Revenue Service understands that records can be misplaced or destroyed, and it provides pathways for taxpayers to substantiate their expenses through other means. This situation is a common challenge, and addressing it involves understanding what the IRS requires and how to systematically rebuild your financial records using alternative documentation. There are established procedures and legal principles that allow for the validation of legitimate expenses, even in the absence of original receipts.

IRS Proof of Expense Requirements

The IRS requires taxpayers to substantiate expenses they deduct. For any business expense, the proof must establish several key elements: the amount of the expense, the date the expense was paid, the name and location of the vendor or payee, and the business purpose of the expenditure. A traditional receipt is simply a convenient document that typically contains all of this required information in one place. The core of the requirement is the information itself, not the specific format of a paper receipt.

For certain expenses, such as travel, meals, and gifts, the documentation requirements are more stringent under the tax code. For these categories, taxpayers must also document who was present and the business relationship or discussion that took place. The IRS generally does not require a receipt for expenses under $75, with the exception of lodging, but you must still have documentation to support the expense.

Acceptable Secondary Evidence

When original receipts are unavailable, a variety of other documents can serve as acceptable secondary evidence. The most powerful sources are bank and credit card statements. These records provide an official, third-party timeline of transactions, showing the date of payment, the amount, and the name of the vendor. A canceled check, or the digital image of one provided by a bank, serves a similar function, providing strong proof of payment to a specific entity.

Electronic payment confirmations from platforms like PayPal or Zelle can also be used, as they create a digital trail of transactions. For larger purchases or ongoing services, you can contact vendors or suppliers directly to request duplicate invoices or statements of account. These documents can be particularly helpful as they often itemize the specific goods or services purchased, which helps establish the business purpose. In some business contexts, shareholder or board meeting minutes that formally approve a significant expenditure can also serve as corroborating evidence of the expense’s purpose and authorization.

Methods for Reconstructing Records

The most effective method is to create a detailed expense log, often using a spreadsheet program. This log should list each individual expense and have columns for the date, amount, vendor, and a specific description of the business purpose. For each entry in the log, you should create a reference that points directly to the supporting document, such as noting the specific bank statement and date of the transaction.

This process of reconstruction is supported by a long-standing legal principle known as the Cohan Rule, which originated from the 1930 court case Cohan v. Commissioner. This rule allows taxpayers to use reasonable estimates for their expenses when direct evidence is missing, provided they can establish that it is more likely than not that they paid or incurred a deductible expense. The Cohan Rule is not a license to invent deductions; you must provide a credible basis for your estimates, and the IRS may only allow the lowest possible amount for an estimated expense. Congress has enacted stricter substantiation rules under Internal Revenue Code Section 274 for certain expenses like travel and auto use, which limits the application of the Cohan Rule for those specific categories.

Presenting Reconstructed Records to the IRS

You should organize your materials in a professional and easily understandable manner. A common approach is to use a binder with tabbed sections for each expense category, such as “Office Supplies,” “Utilities,” or “Vehicle Expenses.” At the front of each section, you should place your summary expense log, followed by the corresponding copies of bank statements, canceled checks, or vendor invoices that support the entries.

During the audit, maintain a calm and cooperative demeanor. Your role is to guide the auditor through your documentation, demonstrating how you have systematically proven each deduction. Walk them through your expense log, pointing out how specific entries are cross-referenced to the secondary evidence you have provided. This organized approach shows a good-faith effort to comply with tax law and can make the process smoother for both you and the auditor.