What Happens If You Get Audited And Don't Have Receipts
No one likes getting audited by the IRS. It's a time-consuming and often stressful process. And, if you don't have receipts to back up your deductions, it can be even more difficult.
Don't panic if you find yourself in this situation. There are still things you can do to successfully navigate an IRS audit without receipts.
How to prepare for an IRS audit
Being well-prepared for the audit can help significantly. Here are a few tips to help you through the process.
Organize your records
Whether you have receipts or not, it's essential to be organized when dealing with the IRS. Gather any and all records that you do have related to your deductions. This might include bank statements, canceled checks, credit card statements, mortgage statements, property tax records, and medical bills.
You can even use your calendar to reconstruct your deduction records. For example, a calendar showing doctors' appointments can support your medical mileage deduction.
Reach out to other organizations or businesses that might be able to provide the documentation you don’t have. For example, if you claimed the Child and Dependent Care deduction, your child’s daycare provider might be able to provide a statement for the fees you paid that year. Likewise, if you donated money to charity, the charity might be able to issue a duplicate receipt for your donation.
If the records aren’t available, don’t make them up. If you get caught, you might face tax fraud charges in addition to the audit.
Involve an expert
You may want to get help from a tax attorney if you’re audited by the IRS and don’t have receipts to back up your deductions. Tax attorneys are authorized to represent you during an IRS audit. They can also help you gather the appropriate documentation, ensure you comply with all tax laws, and represent you during any negotiations with the IRS.
Don’t worry that having your attorney representing you will make it look like you have something to hide. You have the right to representation during an IRS audit, and auditors are used to dealing with tax attorneys.
Know what kind of audit you’re dealing with
Not all audits are the same. The IRS typically conducts audits in one of three ways:
- Correspondence audit. This type of audit usually takes place entirely through the mail. The IRS asks you to mail your documentation. Nothing else is necessary if the agent is satisfied with your paperwork.
- Office audit. In an office audit, the IRS asks you to bring your tax records to a local IRS office.
- Field audit. During a field audit, the auditor visits your home or business. Whenever possible, schedule meetings with the IRS auditor to take place at your tax professional’s office. This allows you to avoid having an IRS auditor poking around your home or office.
What to do during the audit
During the audit, the auditor will ask questions and request specific documents to support the income, deductions, and credits you claimed on your tax return.
To make the process go smoothly, keep these tips in mind.
Make a good impression
When meeting with an IRS auditor, first impressions matter. Dress professionally and be respectful, calm, and polite. Remember that the auditor is just doing their job, and they are not out to get you.
If you lost your receipts due to extenuating circumstances, such as a flood, fire, or divorce, explain the situation. Again, being forthcoming and cooperative can go a long way toward getting the IRS auditor on your side.
It's also important to answer all of the auditor's questions honestly and to the best of your ability. If you don't know the answer to a question, say so. The auditor is more likely to sympathize with your case if you show that you're taking the audit seriously and being cooperative.
Rely on an expert
If you hire an attorney to help with the audit, let them take the lead in answering questions and responding to requests for more information. An experienced tax attorney knows how to answer questions without giving the auditor more information than requested. This can help make the audit process as smooth as possible.
What happens if you don't have receipts
If you don’t have documentation, there’s a good chance the auditor will deny at least some of your deductions. The IRS will then add those disallowed deductions to your taxable income and assess additional taxes plus interest and penalties.
But you’re not totally out of luck. Here are a few options to consider.
Look for errors in your favor
You may be able to offset the loss of those deductions with errors in your favor.
For example, if you realize you accidentally reported the wrong basis for a stock sale that resulted in paying more tax than was due, correcting that mistake might lower your capital gains tax.
Work with your tax advisor to comb through your tax return looking for any errors in your favor so you can point them out confidently.
Negotiate interest and penalties
Next, try to negotiate with the auditor to have the penalties removed or at least reduced—a process known as an abatement. The auditor might not be able to do anything about the taxes you owe, but they usually have quite a bit of discretion when it comes to assessing penalties.
Typically, the auditor doesn’t have the authority to abate interest. But you can request an interest adjustment by filing Form 843 after you receive the assessment. But keep in mind that the IRS is usually reluctant to reduce interest unless the auditor causes an unreasonable delay or error.
An IRS audit is no picnic, but it doesn't have to be a nightmare either. If you find yourself being audited without receipts, take a deep breath and follow these tips. Be organized, make a good impression, and know the law inside and out. With a little bit of preparation, you'll be able to successfully navigate an audit—receipts or not!
How can Taxfyle help?
While our Pros won’t represent you during an audit, they can help make sure your taxes are filed correctly. When it comes to filing your taxes correctly, there’s no better person to do it than a Pro.
When you file your taxes with Taxfyle, we connect you with the right Pro to meet your tax needs. The best part is that they do the work for you.
Don’t procrastinate next tax season. Let a Pro help you file your taxes.