Lost Your Receipts? The Cohan Rule Might Save Your Deductions

George M. Cohan was the Broadway composer behind "Give My Regards to Broadway" and "You're a Grand Old Flag." He spent freely and kept almost no receipts.

When the IRS audited him in the 1920s, Cohan could not document thousands in claimed business expenses. The IRS disallowed everything. He appealed, and in 1930, the Second Circuit ruled in his favor with a principle that still applies today.

The court reasoned that Cohan had obviously incurred real business expenses. Disallowing them entirely for missing paperwork would let form triumph over substance. The court permitted estimated deductions based on available evidence, even without receipts.

That decision became the Cohan Rule.

What the Cohan Rule Actually Says

When a taxpayer cannot substantiate an expense with documentation but credible evidence shows the expense occurred, the Tax Court can allow a reasonable estimate of the deductible amount.

This is not a free pass. But losing your records is not automatically a death sentence for your deductions.

When It Works

The Cohan Rule tends to work when the expense is clear and plausible given the taxpayer's business, some corroborating evidence exists even without a receipt, and the estimated amount is reasonable and conservative.

A freelance photographer who can show client invoices, a portfolio, and equipment purchase records can make a credible case for estimated supply or maintenance expenses from a year where detailed records were lost.

A consultant who can demonstrate travel for client engagements through invoices, calendar records, and credit card statements showing charges in the right cities can support estimated meal and lodging costs without every individual receipt.

The more objective evidence you have, the better your position.

The Four Categories Where It Does Not Work

Congress explicitly carved out four expense types from the Cohan Rule in Section 274(d). For these, you either have documentation or you get nothing. No estimates allowed.

1. Travel expenses. Airfare, hotels, and related costs require receipts and records of business purpose.

2. Business meals. Must document amount, date, place, business purpose, and attendees.

3. Entertainment expenses. (Largely irrelevant since entertainment deductions were eliminated post-2018, but still on the list.)

4. Listed property. Passenger automobiles, computers, cell phones, and other items with high personal-use potential. Vehicle mileage logs, business-use percentages, and acquisition records are required.

These are the most frequently abused categories, and also the ones most freelancers care about most.

What You Can Do When Records Are Gone

Reconstruct what you can. Bank and credit card statements are often retrievable for multiple years. These show amounts and vendors even without itemized receipts.

Get duplicates. Many vendors, hotels, and airlines can provide receipt copies from prior years. Software companies almost always have billing history in your account.

Use secondary evidence. Calendar entries, client emails, photos of equipment, project files showing work dates. All corroborate that real business activity occurred.

Document your reconstruction. Write down what you are doing to recreate records and why originals are unavailable. A fire, flood, or hard drive failure is better than no explanation.

Be conservative on estimates. Courts applying the Cohan Rule estimate on the low end. A claim that seems inflated relative to your income will not survive. Come in with a defensible number, not one that maximizes the deduction.

The Practical Lesson

The Cohan Rule is a fallback, not a strategy. It is harder to use than having actual receipts, and for the four Section 274(d) categories, it does not apply at all.

Keep receipts, use an expense app that photographs them immediately, and back up your records somewhere that survives a laptop dying.

George Cohan won his case, but spent years fighting the IRS over it.

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Sources

• Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930) - Original Cohan Rule court decision
• IRC Section 274(d) - Statutory substantiation requirements that override the Cohan Rule for specific categories
• Treasury Regulation § 1.274-5T - Substantiation requirements for listed property
• IRS Publication 463 - Documentation requirements for travel, meals, and listed property

The four Section 274(d) categories (travel, meals, entertainment, listed property) are explicitly excluded from Cohan Rule estimation. All other business expenses may qualify for estimation with credible evidence.