How to Legally Reconstruct Your Records

Home » Blog » How to Legally Reconstruct Your Records

Ledger-1428230_1920If you are audited by the IRS, it is often several years after the end of the year being audited.  It is unfortunately very common to be unable to produce the receipts, bills, or other written documentation for all the items the auditor is questioning.  That’s when you and your accountant will need to reconstruct your records. 

It’s perfectly legal to reconstruct your records in any way that provides adequate evidence that your return was actually filed correctly.  The law does not require perfect record keeping.  But it is definitely easier and cheaper if you do keep good records. 

Here are a few examples of ways to reconstruct various items:

  • See if you can request a copy of your receipt from the original company.  Call your mortgage company, doctor, or vendor for a copy or a statement.
  • Get affidavits from the parties involved detailing the transaction that you don’t have a receipt for.
  • The law requires that you receive a receipt at the time you make a contribution in excess of $250, but you can always request a copy if you lose the original.
  • Use a diary or calendar to back up your deduction for auto mileage, seminars, and travel.
  • You also can back up auto deductions by analyzing your accounting records.  Making a deposit shows that you went to the bank on that day.  Purchases from your vendor show that you picked up merchandise on that day.  Outline your normal sales process for a customer.  For example:  You make one trip to see what work is required, one to deliver the proposal, one to do the work, and a last trip to deliver the invoice and receive final payment.  Calculate the mileage for each customer using this method.
  • Get a copy of the police report or insurance claim to back up your casualty losses. 

The IRS auditor most likely will not accept any or all of these reconstructions.  But they will work at the appeals level or at tax court.  Obviously this will be much more expensive and time consuming.  So the moral of the story—keep your receipts!