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PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4513
Experience:  35 years tax experience, including four years at a Big 4 firm.
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How does the IRS verify a receipt is legal? What if you

Customer Question

How does the IRS verify a receipt is legal?
What if you purchase a laptop and return it, but just have a copy of the receipt. I could easily make that mistake with as much office equipment as we purchase.
Submitted: 1 year ago.
Category: Tax
Expert:  emc011075 replied 1 year ago.

Hi. My name is ***** ***** I will be happy to help you.

To claim a deduction you usually need proof of purchase (receipt) and proof of payment (canceled check, bank statement). If in doubt, IRS will request your bank statements. If you refund it, there will be a record of it, a deposit.

Couple of "refunds" can skip IRS attention but I would not advice you to do it on regular basis. IRS only needs to proof income, it is up to you to proof the deduction.

Customer: replied 1 year ago.
What if you don't do a refund and just do store credit?
Customer: replied 1 year ago.
Does the IRS care. In theory I could have bought something that wasn't really deducutbile from office depot like candy or something.
I know that's probably not the norm, but it could happen
Customer: replied 1 year ago.
You still there?
Expert:  emc011075 replied 1 year ago.

If you get a store credit, your next purchase will reflect it. IRS doesn't care about what you purchase as long as you can prove it. It is up to you to prove your deductions. If you cannot, IRS can simply disallow it. You may not get in trouble the first time, but if the auditor determine that you were cheating, than you have a big problem.

Expert:  emc011075 replied 1 year ago.

IRS use all kinds of statistics to determine if your deduction is reasonable or not. If, for instance you purchase/sale equipment and you claim several thousands in meals and entertainment expenses or very high cellphone expenses the deduction will be flagged and selected for a review.

Expert:  emc011075 replied 1 year ago.

Any questions?

Customer: replied 1 year ago.
How will the IRS now the next purchase I have a copy of the original receipt before the exchange?
Expert:  emc011075 replied 1 year ago.

It is not IRS job to prove your expenses. It is up to you prove it. And to prove a deduction you usually need proof of purchase and proof of payment.

Customer: replied 1 year ago.
sorry...got a phone call
Customer: replied 1 year ago.
you really haven't answered the question (mainly because I have not worded it correctly).
Customer: replied 1 year ago.
Scenario
1. Purchase laptop for $1000
2. Copy receipt into TurboTax
3. Exchange Laptop for $1000 worth of snickers
4. I still have the copy of the original receipt in TurboTax
5. But I really ended up purchasing snickers
Customer: replied 1 year ago.
are you still there?
Expert:  emc011075 replied 1 year ago.

If you exchange laptop for snicker than you should not take a deduction for a laptop. Look, I ma here to help you with tax questions, not to find ways to cheat IRS.

Customer: replied 1 year ago.
I'm not looking for ways to cheat...this has happened. We have receipts for things I know are not all valid.
Customer: replied 1 year ago.
The question is how does the IRS verify a receipt. That's it.
Customer: replied 1 year ago.
I gave you a scenario to keep it simple.
Expert:  PDtax replied 1 year ago.

Hi. Different expert here, since your first expert opted out. I'mCustomer

Expert:  PDtax replied 1 year ago.

I like the creativity in your question. The actual truth is that receipts are subjected to IRS scrutiny after your return has been selected for examination. The quality of your responses, truthfulness, and actions in the filing of your return and during the audit (if you're silly enough to represent yourself) will lead the auditor to be skeptical or accepting when a review of the receipts is appropriate.

Keep in mind that if you have been selected for exam, IRS scores your return as one with tax collection potential. The kind of taxpayer IRS thinks you are, the typs of business expense you are claiming, or tax loss, will also have impact. It is a facts and circumstances test.

One of my favorite examples: A long time horse race bettor, Ol'Houndstooth, wins a long shot one November day at the track, for $16,000, let's say. Because Ol' Houndstooth knows he can deduct losses up to the amount of winnings, he needs a stack of losing tickets.

Customer: replied 1 year ago.
Good answer...how do I accept this?
Expert:  PDtax replied 1 year ago.

Ol' Houndy goes around the track for the next few days, collecting all the losers he can from his friends and others. Some of the tickets have footprints on them, since they were on the floor.

He collects enough to offset the gain, and claims the loss as an itemized deduction. Two years later, IRS audits.

The tickets, with $4,500 in losses on the first day, $5,334 the second and $6,166 the third, are presented to support the deduction. The auditor takes a look at the losing tickets, sees the dates, asks about his betting habits, sees a few footprints, and disallows the entire batch.

The thing about receipts is that they tell a story, but not the complete one. IRS will ask to see proof of the purchase as well.

Expert:  PDtax replied 1 year ago.

You can rate my assistance if this answer meets your needs (and I will kick some of the $$ to the other expert). I'mCustomer Just select me for feedback.

Customer: replied 1 year ago.
How/were? The Big Stars up top are disabled.
Expert:  PDtax replied 1 year ago.

If you type in your rating in text, I will ask site management to manually record your rating and close out your question. Thanks again.

Customer/p>
Customer: replied 1 year ago.
Good
Expert:  PDtax replied 1 year ago.

I may have fixed the issue from this end. Please look and see if the rating scale is opened now.

Customer/p>