Records get lost, discarded or destroyed. In an audit, missing documents make a deduction harder to support, but not always impossible. What can be done depends on the type of expense, because the law applies stricter substantiation rules to some categories than to others.
The Recordkeeping Requirement
Under Treasury Regulation section 1.6001-1, taxpayers must keep books and records sufficient to establish the income, deductions and credits shown on their returns, and must retain them as long as they may become material to the administration of the tax laws. IRS guidance generally recommends keeping records for at least three years, six years if more than 25% of gross income was not reported, seven years for a claim involving worthless securities or a bad debt deduction, and indefinitely if no return or a fraudulent return was filed. Records relating to property should generally be kept until the limitations period expires for the year the property is disposed of.
Start with Third-Party Records
Many missing documents can be replaced with copies from the people who created them:
- Banks and credit card issuers can provide statements and images of canceled checks.
- Vendors, suppliers and service providers can often issue duplicate invoices or receipts.
- Clients and payment platforms can confirm payments and provide copies of information returns.
- Lenders, escrow companies and county recorders keep records of property purchases, sales and loans.
A bank or card record shows the date, the amount and the payee. It does not always show what was bought or why, so it is strongest when paired with invoices, contracts, calendars or correspondence that explain the business purpose.
The Cohan Rule for Many Expenses
Treasury Regulation section 1.274-5T describes the decision in Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930), as holding that, where the evidence indicated a taxpayer incurred deductible travel or entertainment expenses but the exact amount could not be determined, the court should make a close approximation rather than disallow the deduction entirely. For expenses outside the stricter rules described below, this approach can allow a reasonable estimate, but only when there is credible evidence that the expense was actually incurred and a reasonable basis for the amount.
Stricter Rules: Travel, Gifts and Vehicles
For travel, gifts and listed property such as vehicles, section 274(d) requires adequate records or sufficient evidence corroborating the taxpayer’s own statement. The same regulation states that this requirement supersedes the Cohan doctrine for those items, so no deduction is allowed based on approximations or the taxpayer’s unsupported testimony.
The regulation also explains how timing affects credibility. A contemporaneous log is not required, but a record made at or near the time of the expense or use, supported by documentary evidence, has a high degree of credibility. A statement prepared later must be supported by corroborating evidence with a high degree of probative value. For vehicle use, that evidence can include calendars, client records, emails and service records showing odometer readings.
Under Treasury Regulation section 1.274-5T(c)(5), if a taxpayer establishes that adequate records were lost through circumstances beyond the taxpayer’s control, such as destruction by fire, flood, earthquake or other casualty, the taxpayer has the right to substantiate the deduction by reasonable reconstruction.
Charitable Contributions: A Timing Rule
For any charitable contribution of $250 or more, section 170(f)(8) requires a contemporaneous written acknowledgment from the charity. The acknowledgment is contemporaneous only if it was obtained on or before the earlier of the date the return was filed or the return’s due date, including extensions. An acknowledgment obtained for the first time during an audit generally comes too late.
Written Explanations
A written statement describing the expense, its business purpose and why the original record is missing can help explain the other evidence. On its own, a taxpayer’s statement is unlikely to be enough, and for travel, gifts and vehicles it must be corroborated.
Burden of Proof
The taxpayer generally bears the burden of supporting deductions. Under section 7491(a), the burden can shift to the IRS in court on a factual issue only if the taxpayer introduces credible evidence and has complied with the substantiation requirements, maintained the required records and cooperated with reasonable IRS requests. Missing records therefore make careful reconstruction more important, not less.
A Practical Reconstruction Process
- List each item under examination and identify what documentation is missing.
- Request copies from banks, card issuers, vendors and other third parties.
- Gather corroborating evidence, such as calendars, emails, contracts and photographs.
- Prepare a schedule that ties each expense to its supporting evidence.
- Explain in writing why the records are missing and what was done to replace them.
- Be accurate. Items that cannot be supported are better conceded than overstated.
The Bottom Line
Missing records do not automatically mean a lost deduction. Third-party copies and corroborating evidence can often fill the gap, and the Cohan rule may permit a reasonable estimate for ordinary expenses. Travel, gifts, vehicles and larger charitable gifts are different: their substantiation rules are strict, and timing matters.
Missing records for an IRS audit?
Tax attorney Cassra Minai, Esq. can review your situation in a confidential consultation.