If you are in the middle of an audit and you don't have your receipts, then there is no need to panic. If you do not have receipts in order to prove your income, this does not at all mean that you will face any punishment. Many people do not prefer to keep financial records of their receipts and there are many ways to solve this issue even if you do not meet the requirements of the IRS.
In this article, we will be reading about the auditing and what consequences and problems you have to face if you do not have your receipt while you are being audited. Read on the article below to find out the entire information.
What is the Cohan rule?
This Cohan rule is a savior for many people who pay tax while they are in audit. This rule is named after the famous personality George M Cohan who faced many audits back in the year 1990 when he did not have any proof or evidence to show his business expenses. Since he did not have any proof, Cohan went to the IRS court to plead his case and the IRS came to this decision that the IRS should accept an estimated expense by Cohan. Although, this rule is not a miracle and might not work in some cases as well, but it can still be initiated and tried.
Business owners and other people can make use of this rule and use it to deduct a few of their business expenses when they do not have their receipts. However, there is a high chance that you can still be enquired about some other evidences such as photographs, checks, and calendar notes.
What to use instead of receipts in order to prove your income?
There is a huge chance that you buy something or make an expense but then lose your receipt, or a damage is caused to the receipt, you do not have it, then there can be instead many documents which you can use instead to show the IRS audit in place of the receipts.
These things include:
Apart from these, you can even make use of the Cohan rule to present your statement to the IRS audit. But if you present the Cohan rule, even then you will need to make use of these above mentioned things in order to prove your claims and to make sure they are justified.
What if you are proven guilty after an IRS tax audit?
After the completion of your IRS tax audit, you will receive an email after you have filed your complain within 30 days. You will have total of 30 days to make and appeal your claim. You can claim to the IRS to solve your issue.
However, it does not necessarily mean that you will always win but your appeal can also be denied and there are great chances for its denial. If your case is rejected and denied, you will be charged with money and there are many penalties and fines which you will have to bear.
You can even be charged for tax fraud and if you are charged for that, you will have to suffer a serious punishment and you can even be sent to jail and have to pay hefty fines.
The only way that you can avoid the IRS tax audit is to pay the taxes every year now and then. This is the only way that you can avoid the tax audit conducted by the IRS.
Wrapping up
So, this was all there was about the IRS tax audit that one has to face and what to do if you do not have any receipts while your audit is being done. You should take care of your receipts but incase it gets lost and you cannot find it, you will need to show some other proofs and you can even make use of the Cohan rule which is mentioned above in this article.
