Lose Your Receipts, Keep Your Deductions

By Lee Bellinger / March 5, 2015

t’s a little known fact, and one the IRS wants you to forget, but receipts are not always necessary to prove an expense.

Thanks to a larger-than-life 1920’s Broadway impresario called George Cohen (“Give my regards to Broadway” & “Yankee Doodle Boy” are two of
his memorable contributions to the American musical lexicon) we don’t have to produce them.

Cohen had the expansive habit of paying for his travel and dining bills in cash. The IRS took a dim view and penalized him. He went to
court. And lost. He went again. And won.

The Cohen Rule might be just what you need if you can’t find that elusive receipt. You may be able to prove through other supporting evidence, such as oral or written statements from witnesses, that your charge is tax-deductible.

The Art of Reconstruction

The number one reason IRS busybodies give to disallow deductions for individual filers is a lack of complete documentation. Some IRS agents even lie to taxpayers, making arbitrary documentation demands.

If you can’t meet them, the agent will improperly disallow your deductions.

IRS publications specifically admit that you do not always have to have a receipt or cancelled check to claim a deduction. You have every right to “reconstruct” missing records to claim deductions in cases where, through no fault of your own, records are lost, destroyed, etc.

Revenue Regulation 1.274-5(c)(5) provides as follows: “Where the taxpayer establishes that the failure to produce adequate records is
due to the loss of such records through circumstances beyond the taxpayer’s control, such as the destruction by fire, flood, earthquake, or other casualty, the taxpayer shall have a right to substantiate a deduction by reasonable reconstruction of his expenditures.”

Your own testimony can substantiate a deduction. When you back up your claims for deductions with an affidavit, signed under penalty of perjury, your statement takes the form of testimony, just as if given in a court of law. As long as the testimony you provide in your affidavit is plausible, credible, and uncontroverted, it should be sufficient.

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