Handling Unsubstantiated Expenses in an IRS Audit

Undocumented Expenses In An IRS Audit

Your Best Defense With Undocumented Expenses

In the event of an audit – Start first with your documented expenses—present first every item that you can substantiate dollar for dollar.

Save undocumented expenses for last.
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For instance, for a company car expenses, use the original invoice to substantiate the cost of the car. Use repair bills, which usually cite odometer readings, to reconstruct miles driven. Combine this data with an average number of MPG to estimate the cost of gas.

You may even be able to reconstruct tolls and parking fees from sales reps’ call reports. For Travel & Entertainment (T&E), you should be able to get photocopies of charge receipts at restaurants from your credit card company.

For other expenses, ask vendors for copies of receipts.

Learn More About Tracking Expenses HERE.

When You Cannot Reconstruct Expenses Details:

Present any documentation you can get your hands on relating in any way to the unsubstantiated expenses.

Then say: “Since I’ve been able to give you all this (referring to documentation for all of the substantiated expenses), and everything you have seen is accurate, why waste your time and mine plowing through this?”

Be prepared to offer a a reasonable settlement or to make a counteroffer to the IRS auditor’s proposal.

Business Accounting Software:

  • (Copyright:  The American Institute of Professional Bookkeepers VOL. 2: Issue 34)

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