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.
The IRS recommends that you maintain original receipts to substantiate entries listed on your income tax returns. Although the time frame for keeping receipts varies, the IRS suggests that you keep them so long as they may be necessary, which means as long as the statute of limitations is in effect. For example, the IRS has three years after your original filing to assess additional tax, so it is prudent to maintain receipts for credits, deductions, losses, for a minimum of three years.
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.
Denise Caldwell is a finance writer who has been writing on taxation and finance since 2006. Her articles appear regularly on websites such as Gomestic.com and MoneyNing.com. She has taken what she learned while working at the IRS to provide readers with helpful tax and finance tips. Caldwell received a Bachelor of Arts in political science from Howard University.