IRS Record Keeping Guidelines
The Internal Revenue Service generally advises taxpayers to retain copies of all tax returns and any relevant supporting documentation for at least the previous three tax years. The IRS also provides an extensive list of the types of records they may request if you are audited. These include:
- Legal paperwork and documentation
- Loan agreements
- Medical or Dental Records
- Employment documents
The IRS accepts electronic records in some instances, namely if the electronic records were produced by tax software. If you have any questions about whether your electronic documents and files are acceptable to the IRS, you should contact an experienced tax attorney right away.
Can Lack of Receipts Derail Your Audit?
While it is imperative that you maintain all your records relating to your tax returns, especially for the last three tax years, if, for some reason, you do not have all the necessary documentation before an audit, you aren’t out of luck completely
Owing to something known as the Cohan Rule, named after George Cohan, a popular Broadway star in the early twentieth century, the IRS must accept what is known as “other reasonable evidence.” This rule allows a taxpayer to dispute the IRS’s determination of a tax liability through judicial review. Simply put, the IRS must allow you to deduct some of your expenses, even if you cannot provide the proper documentation if you can provide evidence which is credible.
Some examples of credible evidence for expenses may include:
- Canceled checks
- Calendar notices. From you or colleagues
It’s worth noting that in the 134 cases identified by the IRS under IRC Statute 162, the judicial courts affirmed the IRS position 74 percent of the time. This means that while other credible evidence is permissible, it carries a much higher burden of proof on the taxpayer. In addition, as there is rarely any definitive proof of the total amount of deductions, the courts will estimate a reasonable amount to be deducted from the individual’s tax burden.
Contact an Experienced Tax Attorney
As business expenses are the most-litigated tax issue according to the IRS, if you are audited, or disagree with the IRS’s tax assessment, you should consult with a knowledgeable tax expert immediately.
If you are facing an audit from the IRS, you need a tax law firm who is willing to fight for you. At Ayar Law, we represent people and business with state and federal tax problems that necessitate creative solutions. Our firm has extensive experience and knowledge of IRS audit procedures and regulations. We focus entirely on tax problem resolutions and giving our clients a fresh financial start. We strive to get you the best solution for your individual tax situation. So, if you’re concerned about your tax records or if you have the proper documents for an audit and don’t know where to turn, call Ayar Law today at (248) 262-3400 for a free, no-obligation consultation.