If you’re a business that deducted expenses and you no longer have receipts, it may be logical that you
would have expenses that the IRS should allow even though you don’t have a receipt. The IRS provides some
flexibility and can take your word that you had allowable expenses. (This is known as the Cohan Rule based on
a tax court case that may give you flexibility with your records when proving expenses to the IRS.)
Items you probably can’t recreate
The tax code requires some expenses to be documented at the same time the expense occurs, such as:
- Travel/entertainment expenses: These expenses are required to be recorded by receipts
made at the time the expense is incurred.
- Charitable contributions: All charitable contributions need receipts that accurately
reflect the value of the contribution.
- Mileage records: You are required to record the mileage, date, place, and business
- Gambling losses: If you are going to deduct gambling losses, you must have receipts,
tickets, statements and documentation such as a diary or similar record of your losses and winnings.
Technically, if you do not have these records, the IRS can disallow your deduction. Practically, IRS
auditors may allow some reconstruction of these expenses if it seems reasonable.
more about handling an IRS audit.
Reconstructing records for the IRS
Most importantly, get to work immediately to reconstruct the items. It can take awhile to put all or part
of the pieces together, so start right away to meet your IRS response deadline.
You may have to reconstruct your records or just simply provide a valid explanation of a deduction instead
of the original receipts to support the expense. If the IRS disagrees, you can appeal the decision. You may
also have to argue against penalties during the audit by providing facts on how you made your best effort to
comply. Lack of records often leads to a 20% IRS
Tips to reconstruct your records:
Review bank statements and credit card statements. They are usually a good list of what you paid. They
may also be a good substitute if you don’t have a receipt.
- Vendors and suppliers may have duplicate records. Reach out to them if you need a copy.
Appointment books can provide back-up information about travel, number of clients and frequency of
- Cell phone records can help establish dates of service or assist in reconstructing expenses.
You may be able to reconstruct a reasonable mileage argument with online map tools. Don’t just estimate
miles per week x 52 = miles to deduct. Consider periods of no travel.
If you reconstruct or estimate expenses in a way other than what the IRS requires, create a declaration,
and sign it under penalty of perjury.
A tax pro can help
Filing taxes is difficult. Dealing with tax problems can be very difficult. Tax professionals can help when
you can’t get access to all the records the IRS may be asking for.
Experienced tax pros know your options and the likelihood of an IRS agent accepting your
reconstructions. They can also get you back on track and get your record-keeping in tip-top shape.