The Cohan Rule: What Happens When You Have No Receipts

If you are reading this because a letter arrived, start here: a missing receipt does not automatically mean a lost deduction. There is a real legal doctrine — the Cohan rule — under which a court may accept a reasonable estimate of an expense you genuinely incurred but cannot document precisely.

There is also a large, specific carve-out where that doctrine does not apply and no estimate is accepted, no matter how honest you are. Knowing which of your deductions sits on which side of that line is the single most useful thing you can do tonight, and it is what this page is for.

This is general information, not tax or legal advice. Estimates — confirm with your tax professional.

The Short Answer

• Ordinary business expenses — supplies, materials, subcontractors, professional fees, most operating costs. If you can establish the expense happened and give a reasonable basis for the amount, the Cohan rule means an estimate can survive.
• Travel, meals, gifts, and vehicles — Internal Revenue Code §274(d) requires strict substantiation here and supersedes the Cohan rule. No records, no deduction.

That is the whole framework. Everything below is detail on how to apply it and what evidence you can still assemble.

What the Cohan Rule Actually Says

The rule takes its name from Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930). The taxpayer was the Broadway showman George M. Cohan, who claimed substantial travel and entertainment expenses he had genuinely incurred but had not documented. The court held that where it is satisfied deductible expenses were incurred, refusing any deduction at all because the exact amounts are unproven is the wrong result — it may instead make an approximation.

Three qualifications matter, and most summaries of the rule omit them:

• It is a court's discretion, not your right. You cannot file an estimated deduction and cite Cohan. The doctrine describes what a court may do when reviewing a disallowance.
• You still have to prove the expense was incurred. Cohan relaxes proof of the amount. It does nothing for an expense you cannot show happened at all.
• The approximation is made against you. The court in Cohan was explicit that any estimate bears heavily on the taxpayer whose own inexactitude created the problem. In practice, an estimate lands at the conservative end.

Separately, §6001 of the Code requires taxpayers to keep records sufficient to establish income, deductions, and credits. Cohan is a judicial remedy for falling short of that duty — not an alternative to it.

The Two Buckets — The Part Nobody Explains Clearly

Congress narrowed Cohan in 1962 by enacting §274(d), and Treasury Regulation §1.274-5T(a) states directly that the strict substantiation requirement supersedes the Cohan doctrine for the categories it covers. This table is the practical result:

One further note on Bucket B: entertainment expenses are generally not deductible at all following the Tax Cuts and Jobs Act, so the substantiation question does not usually arise for them. Business meals remain deductible subject to their own limits, and remain inside §274(d).

If you take one thing from this page, take the sorting exercise: go through the deductions under examination and put each one in a column. Your realistic exposure is the Bucket B total, not the whole claim.

What Still Counts as Proof When the Receipt Is Gone

Ranked honestly by strength. The distinction that matters throughout: some evidence proves payment, and some proves business purpose. Examiners test the second.

1. The contemporaneous receipt. Nothing outranks it. Worth checking whether it genuinely no longer exists before assuming it does not.
2. Merchant confirmation and digital receipts in your email. Almost all modern business spend generates a confirmation email — order confirmations, renewal notices, invoices as attachments. This is usually the single richest untapped source, and the reason most people are far less unprepared than they fear. It typically establishes amount, date, merchant, and often the line items.
3. Vendor duplicate invoices. Suppliers, landlords, and SaaS vendors will reissue on request, and many retain records for seven years or more. A reissued invoice is original documentation, not reconstruction.
4. Bank and credit-card statements. Establish amount, date, and payee — but not business purpose. Partial evidence. Do not treat a statement as equivalent to a receipt, because an examiner will not.
5. Calendar entries and contemporaneous notes. Weak on amount, strong on the thing statements cannot show: why the spend was for the business. Pairing a statement line with a calendar entry is much stronger than either alone.
6. Written reconstruction. Permitted, and better than silence, but it is the weakest tier. Contemporaneous beats reconstructed every time.

Reconstructing the Record Before You Reply

An order of operations that avoids wasted effort:

1. Read the letter properly. Note exactly which line items and which tax year are under examination. Examinations are usually narrower than the panic suggests, and everything that follows should be scoped to that list.
2. Pull the bank and card statements for that year. They are the index to everything else — not the evidence itself, but the list of merchants to chase.
3. Search your email for those merchants. Work merchant by merchant from the statement. This step recovers more documentation than any other, because the confirmations were delivered to you at the time and never deleted.
4. Request vendor duplicates for the gaps. Ask for a reissued invoice for the specific date and amount.
5. Assemble by deduction line, not chronologically. The examiner is testing line items on a return. Give the evidence back in that shape.

On timing: examination letters carry response dates, and requesting more time is a normal, routine thing to do in writing. Missing a deadline hurts more than asking to extend one.

Step 3 is the laborious one, and it is the step ExpenseBot automates: it scans a connected Gmail account for receipts and writes them into a Google Sheet you own. It is the same merchant-by-merchant email search, done for you, with the output in a file that is yours. To be clear about what that is and is not — it captures receipts into a spreadsheet. It does not prevent examinations, and it does not make records audit-proof.

The Mileage Question, Answered Straight

This comes up more than anything else, and the honest answer is unwelcome. Passenger automobiles are listed property under §280F(d)(4), which puts vehicle expenses squarely inside §274(d). The Cohan rule does not reach them. An estimate of business mileage — "I drove about 12,000 business miles" — will not carry the deduction.

What can help: a log rebuilt from calendar appointments, job or dispatch records, invoices showing client locations, or navigation history. This is a materially weaker position than a contemporaneous log and may not survive, but it is a genuine attempt at the amount, time, place, and business purpose the statute asks for. If you are rebuilding one, our mileage log template gives you the fields §274(d) actually requires.

When to Stop and Get a Professional

Three signals that this is representation territory rather than a DIY reply:

• The amounts are material to you. If the disallowed deduction would meaningfully change what you owe, the fee is small against the exposure.
• The examination expands beyond its original scope. A request that starts on one line item and grows into other years or other categories is a different situation from the one you began answering.
• Fraud or penalties are mentioned at all. Stop and get representation.

A CPA, an enrolled agent, or a tax attorney can represent you before the IRS and deal with the examiner directly. That is worth knowing even if you decide not to use it.

The Habit That Makes This a Non-Event Next Time

Contemporaneous capture beats reconstruction — legally, because §274(d) asks for records made at the time, and practically, because reconstruction is a weekend you do not get back.

The single highest-value change is to stop relying on paper you have to remember to keep. Most business spend already emails you a receipt; the failure is that nothing collects them. Fix that one step and the Bucket B categories — the ones with no estimate available — stop being the risk they are today.

Further reading: how to organize receipts for taxes, how to categorize expenses for taxes, the Schedule C expense guide, and scanning old receipts from your phone if you are digitising a backlog.