A recent Forbes article leads with the a hopeful title suggesting receipts are optional, asking us to hope that it is possible to take deductions and withstand IRS audit or scrutiny without receipts. Technically, it may be. Reality, practicality and best practices are another matter. The rule that governs this question is known as the “Cohan Rule” – a 1930 ruling based upon the exploits of a high rolling Broadway entrepreneur George M. Cohen, who brought hits such as “Give My Regards to Broadway” and “Yankee Doodle Boy” to the stage. Mr. Cohen was a high roller and always paid in cash. When the time came to confront the IRS, he had no receipts to back up his deductions. The IRS promptly disallowed them.
Mr. Cohen went to a trial court, who agreed with the IRS requirement of written receipts. Mr. Cohen, still dissatisfied, appealed the decision and in 1930 a landmark decision known as the “Cohan Rule” declared that a taxpayer may prove a deduction by “other credible evidence.” Mr. Cohen successfully called in celebrities, business associates, restaurant owners and others to testify to the extravagant dinners he wished to deduct. Mr. Cohen’s cash position may have allowed this in 1930, in today’s world this is virtually impossible.
The IRS has questioned the smallest of cash donations to credible charities. In an audit, you should expect that they will ask for documentation or “proof” of every single fact on your return.
Is it possible to successfully claim an expense without a receipt? Technically yes, but considering the time and expense of going to court to prove it, no. If you do not have a physical receipt, you must be able to present “other credible evidence” to back up your deduction or expense. So, with a tip of the cap to Mr. Cohen, we draw the inevitable conclusion that dealing with the IRS is very serious business, and the best “credible evidence” is a clean receipt.
