There are few things worse than receiving a notice in the mail to advise you that the IRS is reviewing your return. That letter could be made worse, however, if you don't have any receipts on hand to prove that you were eligible to claim the deduction. Fighting the IRS is never something a taxpayer wants, and it's made worse if you don't have the necessary weapons for battle at your disposal. If you don't have receipts for the IRS, you should know your options.
Tax returns are selected for audits based upon either computer scoring or discrepancies between information you receive and information reported to the IRS. With the computer scoring system, your return is compared to returns of similarly situated taxpayers. If you score high, then your return is more likely to be selected for an audit. Your return could also be selected for an audit say if the IRS receives a W-2 from your employer that doesn't match the income listed on your income tax return. If your return is selected for an audit, you may be required to substantiate any questionable items on your return by providing receipts to the IRS.
In addition to receipts, you can offer other documentation to substantiate an expense listed on your tax return. The Conan Rule, a rule emanating from the verdict in the case of Conan vs. Commissioner, allows you to use "other credible evidence" to substantiate deductions, losses and expenses. However, although you can use other evidence, there is no assurance that the IRS will accept it. What the IRS deems as credible is totally within at their discretion.
If you do not have receipts, or any other acceptable documentation to substantiate the questionable items on your return, the IRS will probably assess you additional tax. Even if you don't have a receipt, however, it is still a good idea provide your auditor with a statement explaining your position. Oral statements are acceptable forms of evidence to offer the IRS, but whether your oral statement is enough to substantiate your deduction is another thing altogether. If you are filing a return and don't have receipts to substantiate your entries, then just know that you may be in trouble if the IRS pulls your return for an audit.
Do You Need Receipts for a Tax Return?
It's tax time and you're diligently filling out your income tax returns. But you have a big question: You run a freelance...
What Happens If I Don't Report Income on My Taxes?
Every year, nearly everyone of legal age who receives some form of income must file a tax return with the Internal Revenue...
Can the IRS Audit Me Again If I Have Been Audited Within the Last Two Years?
Familiarizing yourself with the IRS audit process can be the difference between being prepared for or surprised by an IRS audit. Many...
How to Organize Receipts for Tax Deductions
Comments. Video Transcript. How to avoid an IRS audit. One of the best ways is to make sure you keep your receipts....
How Does IRS Auditing Work and Will I Get My Refund?
Knowing what to expect during an IRS audit can be the difference between being paralyzed by fear or guided by knowledge. If...
IRS Audit Process
Give truthful and honest answers to any questions the IRS asks you. Learn what to do if the IRS audits your taxes...
IRS Audit: Proving Expenses
A calendar or log book is a good backup if you don't have receipts for items the IRS asks for. Learn what...