During an audit, the IRS requires you to substantiate the information you reported on your tax returns, and if you can’t prove that your claims were legitimate, the IRS will make changes to your return. Auditors may disallow business deductions, itemized deductions, tax credits, or other claims on your return. That’s why it’s critical to have receipts or other documents that back up your claims.
However, substitutes for receipts should not be fabricated. They should come from actual records created at the time of the event. If you don’t have receipts, you should work with a tax attorney who can help you recreate your expenses or provide the IRS with alternative documents. To get audit representation now, contact us at Wiggam Law today.
Key takeaways
- Auditors require receipts to back up the information on your tax return – but if you don’t have receipts, you may be able to use substitutes.
- Options include bank statements, canceled checks, vendor statements, etc.
- You may need to use multiple documents, such as a line on a bank statement and an email about a business lunch that day.
- The Cohan rule can provide some protection – but it still doesn’t eliminate the need for receipts.
- Work with an experienced audit attorney for representation.
How to Prove Expenses Without Receipts
If you’ve been selected for an audit and don’t have receipts, use the following tips to substantiate your expenses:
- Contact suppliers and service providers – The businesses you paid are very likely to have records about why you paid them. Utility companies, for example, should be able to provide you with old statements, and vendors may be willing to provide you with copies of old invoices.
- Use bank records – Bank and credit card statements, as well as canceled checks, can prove that your business made certain payments. Although these records don’t have any details about the purchase, an auditor may be willing to accept these records when they are reasonable.
- Look at your calendar – Your calendar may have details about business meetings, traveling for business, and possibly buying certain supplies for your business. Use this information as you attempt to reconstruct business deductions. For example, if you didn’t keep a mileage log, your old calendar may help you substantiate the mileage claimed for business or volunteering.
- Access smartphone location details – Your phone collects a lot of information about where you have been. You may be able to use this information to support business travel claims.
- Check old emails – A lot of vendors email receipts to consumers. Even if you don’t remember requesting an emailed receipt, it may help to look through your records.
Strength of Evidence During an IRS Audit (When Receipts Are Missing)
Different types of evidence hold different kinds of power during an audit. The table below shows how different types of evidence compare in audits to help you know where to concentrate your efforts:
| Evidence type | Strength (for audits) | What it proves | Common gaps to fill |
| Third-party reprint (invoice/statement/utility bill) | Strong | What you paid for | May need business purpose/context |
| Merchant/order confirmation + item detail | Strong | What you paid for | Add proof of payment – for example, bank/card statement |
| Bank/credit card statement | Medium | Who you paid | Usually doesn’t show the item/purpose |
| Canceled check + memo | Medium | Who you paid + purchase details on memo line | Lacks details on what was purchased, business purpose |
| Emails/texts/calendar notes | Medium | Context/purpose | Lacks proof of payment. What was purchased |
| Photos + timestamps | Medium | Existence/use | Add dates + tie to job/property |
| Personal notes after the fact | Weak | Your explanation | Must align with third-party proof |
Often, you may need multiple records. A bank statement alone rarely wins an audit. But a bank statement paired with a vendor reprint, calendar entry, and email correspondence can create strong substantiation when the documentation tells a consistent story — who you paid, what it was for, when it occurred, and why it was business-related.
Schedule C Audit With No Receipts
If your Schedule C is being audited, and you have no traditional receipts, the auditor won’t just disallow all your deductions. Instead, the auditor usually assesses the relevance of expenses to the business. Here are the main factors they evaluate:
- Ordinary and necessary expenses: The auditor will examine how common the expense is in your business and how much its use affects your business’s operations and performance.
- Consistency between income and deductions: The bigger the difference between the income and expenses, the more the auditor will scrutinize your finances. For example, if a Schedule C reports $600,000 in income and $590,000 in expenses, the auditor will closely examine the deductions. But they’ll also consider the usual ratio between revenue and expenses in your industry.
- Third-party collaborations: Auditors accept verification from other parties, such as vendors’ invoices, bank or credit statements, contracts with suppliers or service providers, etc.
- Business purpose documentation: This is especially important for travel and meetings. The auditor will review calendar entries, mileage logs, client project files, etc., to determine how they align with business activity.
Does the IRS Accept Bank Statements as Receipts?
Sometimes, but usually only as proof of payment. A bank or credit card statement does not show what was purchased or whether the expense was business-related. Additional documentation is typically required, unless the expense is indisputably business-related – for example, when a restaurant makes a payment to a wholesale food vendor.
In other cases, the auditor will want to see more details on the items purchased. For example, if you spent $1500 at Target, the auditor has to question whether you really bought deductible office supplies or personal items, for example.
Here are some instances where the bank statements may suffice:
- Canceled checks: Images of canceled checks are acceptable because they often include a “memo” line that describes the purchase.
- Specific vendors: If you spend $100 at “Bob’s Industrial Welding Supply,” the vendor strongly suggests the types of products they sell. It’s easier to justify the purchase than if you bought the product in a general store like HomeGoods.
- Expenses under $75: While the IRS still requires documentation for expenses under $75, if you had a single meal below $75 during a business trip, the IRS may accept bank records and credit statements.
There are instances when bank statements aren’t enough, such as for lodging, gifts, meals, travel, etc. In these cases, it’s best to consult a tax professional to help “upgrade” your statements to something receipt-like.
Invoking the Cohan Rule
You may need to invoke the Cohan rule if you cannot substantiate some of your expenses using the tips above. Based on a 1930 tax case ruling, Cohan v. Commissioner, this rule says that you don’t need receipts as long as your expenses are reasonable and credible.
However, that doesn’t mean that the IRS will accept any expense you want to claim. The Cohan Rule has a lot of subjectivity, and to navigate this successfully, you may want to work with a tax attorney.
The US Second Circuit Court of Appeals issued this ruling after the IRS disallowed all of the business deductions claimed by Broadway showman George M. Cohan. Cohan claimed that the deductions were legitimate but that he just didn’t have time to track his expenses or save receipts. Ultimately, the court decided that it was very clear that he had expenses even if he didn’t have the paperwork to back them up, and the Cohan rule was born.
That said, you should not rely on this rule and assume that you don’t need to track your expenses. Additionally, the Cohan rule does not apply to all expenses. For example, the IRS has stricter record-keeping requirements for meals, entertainment, and travel.
Even if the IRS allows you to claim an expense without a receipt, they will allow the minimum average cost for the item, and that’s the amount you’ll be eligible to write off. To ensure that you get to deduct your actual expenses, you should save receipts or other records as diligently as possible.
There are many cases in which the Cohan defense isn’t accepted due to insufficient evidence, failure to reasonably reconstruct records, or a lack of evidence to corroborate the taxpayer’s story.
How to Respond to Auditors If You Don’t Have Receipts
Even if you don’t have receipts, you should still respond to the auditor by the date noted on the audit letter. Consider requesting more time so that you can gather the records you have and start to look for alternatives to receipts.
The audit letter will outline the type of audit and what the IRS needs to see. The IRS may ask you to back up a specific deduction, or credit claimed on your personal tax return, or they may want supporting documents for every detail noted on your business return, including Schedule C’s on 1040 Individual Returns, 1065 Partnership Returns, and 1120 Corporate Returns. The IRS may also list the documents they want to see on Form 4564 (Information Document Request).
In either case, note the requested documents and gather as many as possible. Generally, receipts will only be one of the documents requested by the auditor. For example, the IRS may want sales reports to back up revenue claimed for your business. They may want copies of your accounting records. They may want proof of living arrangements or birth certificates to back up the dependents you have claimed.
Once you’ve gathered what you can, start to recreate expenses using the tips above. Ideally, you should contact an attorney as soon as possible in this process.
What If You Fail an Audit Due to Not Having Receipts
If you fail an audit, you can request audit reconsideration. For best results, work with an experienced audit attorney during this part of the process, especially if you have handled the initial audit on your own. An attorney can help you recreate your expenses even if you don’t have receipts.
They know how to deal with IRS auditors and the type of information that they are likely to accept when trying to substantiate an expense. Keep these tips in mind:
- Review the audit report for disallowed expenses.
Figure out which expenses the auditor disallowed. Then, track down records for those specific expenses.
- Find alternative records to bank up disallowed expenses.
For example, say that you went on a business trip to a conference, but the auditor disallowed the expenses because you didn’t have receipts. Use your phone, old social media posts, or texts/emails to colleagues to show that you went to that city and attended that conference. Then, find old bank or credit card statements showing a hotel charge near that conference on the same weekend. If you don’t have receipts for meals, look into the IRS’s standard allowance for meals while traveling – rules like that can help you avoid the need for receipts in select circumstances.
- Send the new information to the IRS.
Once you have the details, send the new information to the IRS. Don’t send separate packages of info for each disallowed deduction. Instead, send everything to the IRS at once. For your audit reconsideration to be successful, you need to present new information. You can’t just repeat the arguments you used during the initial audit.
An attorney can be a real asset when you are navigating this process. They can help you communicate with the IRS, ensure the auditor respects your rights, and avoid audit penalties as much as possible. If the auditor’s changes to your tax return lead to a tax liability, you may incur penalties for late payment, accuracy, misstatement of the value of an asset, or civil tax fraud. The penalties range from 10% of the unreported tax to 75% of the unreported tax.
FAQs About Getting Audited Without Receipts
What happens if you don’t have receipts for taxes?
You don’t need receipts to file a tax return, but the auditor will ask to see receipts if you are selected for an audit. If you cannot substantiate the information on your return, you may fail the audit and incur a tax liability.
Does the IRS verify receipts during an audit?
Yes, during an audit, the IRS verifies details claimed on your tax returns with receipts or other supporting documents.
Can I use bank statements as receipts for taxes?
The IRS may be willing to accept certain expenses noted on your bank statement. However, you may need to back up expenses with other details. For example, if you have a $500 charge to Home Depot, the auditor can only tell if that was for business or personal purposes with more information.
What if I provide fake receipts during an IRS audit?
Providing the IRS with false information or forged documents is tax fraud. If you provide an auditor with fraudulent documents or if they believe that you are lying, they will refer your case to IRS Criminal Investigation for review. Tax fraud can lead to imprisonment and hundreds of thousands of dollars in penalties. We can’t state enough that only the reconstruction of receipts is legal; fake receipts will just add to your troubles.
What if I don’t have receipts for capital improvements?
If you don’t have receipts for capital improvements, talk to the contractor who worked on your property. They likely have records of the transaction. Look for canceled checks or credit card payments made to contractors, and back up these records with old emails or other communication about the capital improvements.
For example, if you are increasing the basis of your home for a future sale, the IRS auditor expects documentation showing the nature of the improvement, date, and amount paid. Contractor reprints, permit records, payment records, and project documentation can help reconstruct the basis even if original receipts are missing.
How can you get through a Schedule C audit with no receipts?
If your Schedule C expenses are being audited, try to find alternative ways to back up the expenses on your tax return. Ask vendors for records, look at bank statements, find old notes, emails, or texts, and work with an audit attorney to help you.
Can you claim cash expenses without receipts?
Generally, the IRS will only allow most cash expenses if you have receipts. However, there are certain exceptions. The IRS allows you to claim a per diem for lodging, meals, and incidental expenses while traveling for work, and you don’t need to back this up with receipts. If you claim the simplified home office deduction, you also don’t need receipts to back up your claims.
How long do I need to keep records for taxes?
The IRS says that you should keep records for three years. The agency has three years to audit and assess taxes after you file a return. However, in some cases, the agency may go back further, so you may want to keep your records even longer.
Although audit triggers vary, you are more likely to be audited if you have business expenses, itemized expenses, charitable deductions, or high-value credits such as the Earned Income Credit on your tax return. Receipts can be critical for backing up the information on your return, but it is possible to survive an audit without receipts.
Contact us at Wiggam Law today to learn more about what to do if you get audited and to talk about how audit representation can help you. Schedule a consultation with our team or call us at (404)609-1300.
