What Happens If the IRS Audits Me and I Do Not Have Receipts?

What Happens If the IRS Audits Me and I Do Not Have Receipts? So if you don't have substantiation then don't panic because there's lots of ways to substantiate an expense when it comes to that so what the code technically requires is that in order to take a business expense for example that the expense has to be incurred in the tax year and it has to be related to the business or as to be necessary to the business so as to be ordinary and necessary in business so in order to prove that the expense was incurred in the tax year technically the code does require receipts but the phrase that we use around the office as we like to point out the integrity of data so to the extent that you go in and make a presentation of the auditor and you may not have every single paper receipt but to the extent that you can provide a general ledger or a profit and loss statement or that the expenses in general look to be well organized and well presented and they make sense in the context of a whole so for example you're missing a category of receipts or you're missing a major receipts but you have all the other documents related to the audit then the auditor may let that slide you've got well organized financial records you've got other receipts you've demonstrated a good record-keeping practice and.

So the auditor may let you slide here and there and there used to be a rule that we would refer to as the 80/20 rule so if you get 80% of the receipts in the category they just give you the other 20% I've been throwing that rule out the window because audits have become more specific to the actual auditor that's conducted but the general principle applies and so one of the best things that you can do if you're missing receipts or if you have other substantiation issues is just try and build a body of work so for example you don't have any receipts go through your bank statements identify the charges that you do have show the supporting charges if you've got expenses on there that are like from Target or from the grocery store or things like that that could be questionable you might want to leave those expenses off because as long as you can substantiate things to a reasonable perspective as long as it looks reasonable and as long as you do your best to tie the expenses then there's a lot of things that you can do to get credit in those categories even when you're lacking documentation.


Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law