What Happens If You Get Audited and Don’t Have Receipts? No Problem: How to Survive an IRS Audit

Tax season is that dreaded time of year when you must buckle down and do tedious paperwork. Accurately reporting every type of income can be overwhelming—everything from wages and business earnings to dividends, gambling winnings, and social security benefits has to be accounted for.

The only thing worse than filing your taxes is finally breathing a sigh of relief only to see that anxiety-inducing letter in the mail—an audit from the Internal Revenue Service.

The chances of getting audited by the IRS may seem relatively low, but it can still happen to you, regardless of your income level. 0.2% of individual tax returns filed in 2020 were audited—about 1 in 500. Getting audited by the IRS is nerve-wracking enough, but what happens if you get audited and don’t have receipts to back up your deductions or expenses?

Knowing what to do is crucial if you’re missing documentation during an audit. When you encounter roadblocks, a trusted tax professional on your side will make all the difference in navigating the audit and protecting your financial future.

Understanding the IRS Audit Process

Many taxpayers find the IRS audit process daunting. Understanding what triggers an audit, who the IRS targets and the role of IRS auditors can help alleviate some of the anxiety and uncertainty.

What Triggers an IRS Audit?

The IRS uses computer algorithms and human analysis to select tax returns for audit. Some common triggers include:

• High-income earners: The more you earn, the more likely you will be audited.
• Large deductions or credits: Significant deductions or credits can raise red flags.
• Complex tax returns: The more complicated your tax return, the higher the chance of an audit.
• Businesses with multiple entities: Having several business entities can attract IRS scrutiny.
• Businesses with a history of non-compliance: Past compliance issues can lead to future audits.
• Inconsistencies in tax returns: Discrepancies between reported income and expenses can trigger an audit.
• Failure to report income or pay taxes: Not reporting all your income or failing to pay taxes is a surefire way to get audited.

Who Does the IRS Target for an Audit?

The IRS targets a wide range of taxpayers for audit, including:

• High-income earners: Those with substantial income are more likely to be audited.
• Small business owners: Small businesses often face audits due to the complexity of their tax returns.
• Self-employed individuals: The self-employed are scrutinized more closely because of the potential for unreported income.
• Taxpayers with complex tax returns: The more intricate your tax return, the more likely it is to be audited.
• Taxpayers with a history of non-compliance: If you’ve had issues with compliance in the past, you’re more likely to be audited again.
• Taxpayers who have been audited in the past: Previous audits can increase the likelihood of future audits.

The Role of IRS Auditors in the Audit Process

IRS auditors play a crucial role in the audit process. Their primary responsibility is to review tax returns and financial records to ensure accuracy and compliance with tax laws. IRS auditors may:

• Review tax returns and financial records: They meticulously examine your tax returns and financial records.
• Conduct interviews with taxpayers and their representatives: Auditors may interview you or your tax professional to gather more information.
• Request additional documentation and information: They might ask for more documents to support your claims.
• Adjust tax returns: Auditors can adjust your returns if discrepancies are found.
• Assess penalties and interest: Auditors can impose penalties and interest if errors or non-compliance are discovered.

What Happens if You Get Audited & Don’t Have a Receipt?

Am I in trouble if I get audited? It’s a common question, especially if you don’t have the IRS-requested receipts. While it can be stressful, it doesn’t necessarily mean you’re in big trouble. Here’s what could happen if you’re being audited and don’t have the receipts the IRS asked for:

• The IRS may deny the deductions you claimed, meaning you owe more taxes. Disallowed deductions can increase your taxable income, raising your overall tax liability.
• They could charge you extra taxes, penalties, and interest if you can’t prove your claims.
• In more severe cases, you could face penalties for negligence or even accusations of tax fraud.

But don’t panic—missing receipts don’t always mean trouble. The IRS often accepts other forms of proof, and with the right strategy, you can still make your case.

Does the IRS Verify Receipts During an Audit?

Yes, the IRS verifies receipts during an audit to ensure the accuracy of your income tax return claims. They can request documentation to back up deductions or expenses. If you don’t have the original receipts, the IRS may accept alternative documentation.

Alternative Documentation You Can Use, Including Credit Card Statements

The IRS recognizes that receipts can be lost or misplaced and may accept other forms of evidence to verify your expenses. Proper documentation is crucial for verifying business expenses during an audit. These alternatives include:

• Bank and credit card statements showing transactions.
• Canceled checks.
• Vendor invoices or replacement receipts.
• Expense reports or business calendars.
• Email confirmations from vendors or service providers.

This documentation lets you demonstrate your expenses even if the original receipts are missing.

Using the Cohan Rule When Receipts Are Gone

If you’re missing receipts, you can use the Cohan Rule to estimate certain expenses. While this can help save your deductions, there are some limits:

• The IRS will accept reasonable estimates but might reduce the amounts to standard levels.
• The expenses need to make sense for your type of work or business.

The tax code allows for using reasonable estimates but requires supporting evidence.

Although the Cohan Rule can be helpful, it is still essential to provide as much supporting evidence as possible to strengthen your case.

Responding to an Audit

Responding to an audit requires prompt attention and careful consideration. Understanding how to respond to tax audit letters and what to expect during the audit process can help taxpayers navigate this complex process.

How to Respond to Tax Audit Letters Promptly

If you receive a tax audit letter, responding promptly and carefully is essential. Here are some steps to follow:

• Please read the letter carefully and understand the audit process. Make sure you fully comprehend what the IRS is asking for.
• Gather all relevant documentation and information: Collect all the necessary documents that support your tax return.
• Respond to the letter within the specified timeframe: Timeliness is crucial in the audit process.
• Consider seeking the help of a tax professional or attorney: Professional guidance can be invaluable.
• Be prepared to provide additional information and documentation as needed: The IRS may request more information, so be ready to supply it.

By following these steps, you can navigate the audit process more effectively and reduce its stress.

Don’t Panic! Start Here If You’re Facing a Tax Audit Without Receipts

When you’re facing an audit without receipts, remember—this situation is more common than you might think, and there are ways to handle it. The key is staying calm, organized, and taking immediate action. Having proper documentation when filing taxes can help avoid issues during an audit. You can still navigate the audit process successfully, keeping in mind these 5 simple steps:

1. Stay calm—many taxpayers face audits without receipts.
2. Gather alternative documentation like bank statements or emails.
3. Rebuild records using whatever data you can.
4. Prepare explanations for any missing information.
5. Hire a professional tax attorney to guide you through the process.

Best Practices to Avoid Future Audit Issues

Keeping things organized now can save you a lot of headaches later. Here are some easy ways to stay on top of your record-keeping:

• Digitize your receipts regularly to ensure they’re easily accessible when needed.
• Use accounting software to keep track of expenses and streamline your records.
• Hold onto your records for at least 3 years (or up to 7 years if you report losses or complex deductions).

Consulting with tax professionals can be crucial, especially if you must appeal audit findings in tax court.

By staying organized and having everything in place, you’ll feel much more relaxed come tax time and be ready if an audit ever comes your way.

Take the Guesswork Out of Your IRS Audit

Navigating an IRS audit without receipts is challenging, but ignoring the situation will only make it worse. Hiring a professional tax attorney, CPA, or Enrolled Agent, like those at Lothamer Tax Resolution, will reduce stress and significantly improve your outcome, providing you with:

• Expert Support: Tax professionals know the ins and outs of IRS audits. They’ll help you gather alternative documents, use strategies like the Cohan Rule, and make sure you’re taking the right steps.
• Skilled Negotiation: A professional tax attorney, CPA, or Enrolled Agent will advocate for you, working to reduce penalties, settle issues, and keep your deductions whenever possible.
• Less Stress: Handling an audit on your own can be tough. Tax attorneys handle the back-and-forth with the IRS so that you can focus on other things.
• Peace of Mind: With an experienced team managing your audit, you can trust everything will be done right, lowering the chance of mistakes or missed details.

Disallowed deductions or underreported income can result in a new tax bill, increasing your financial liability to the IRS.

Don’t wait until it’s too late—contact Lothamer Tax Resolution today, and let us guide you through your audit with confidence and expertise.

Choose Lothamer For Expert Tax Attorney Solutions in the Midwest & Great Lakes Regions

Lothamer Tax Resolution is here to set you free if you’re facing an IRS audit or struggling with tax debt. With over 45 years of experience, Lothamer’s Enrolled Agents, tax attorneys, and CPAs are dedicated to resolving your tax issues. We help clients across the Midwest and Great Lakes regions, including Michigan, Missouri, Indiana, Illinois, Kentucky, Wisconsin, and Ohio, get back on track with their finances.

Text or call us at 877-955-9020 to schedule a consultation today and take the first step toward financial freedom.