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How does the IRS verify a receipt is legal? What if you

Customer Question
How does the IRS verify...
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
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6/29/2016
Tax Professional: emc011075, Tax adviser replied 1 year ago
emc011075
emc011075, Tax adviser
Category: Tax
Satisfied Customers: 3,234
Experience: IRS licensed Enrolled Agent and tax instructor
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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.

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Customer reply replied 1 year ago
What if you don't do a refund and just do store credit?
Customer reply 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 reply replied 1 year ago
You still there?
Tax Professional: emc011075, Tax adviser 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.

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Tax Professional: emc011075, Tax adviser 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.

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Tax Professional: emc011075, Tax adviser replied 1 year ago

Any questions?

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

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Customer reply replied 1 year ago
sorry...got a phone call
Customer reply replied 1 year ago
you really haven't answered the question (mainly because I have not worded it correctly).
Customer reply 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 reply replied 1 year ago
are you still there?
Tax Professional: emc011075, Tax adviser 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.

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Customer reply 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 reply replied 1 year ago
The question is how does the IRS verify a receipt. That's it.
Customer reply replied 1 year ago
I gave you a scenario to keep it simple.
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 1 year ago
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4,712
Experience: 35 years tax experience, including four years at a Big 4 firm.
Verified

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

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Tax Professional: PDtax, Certified Public Accountant (CPA) 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.

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Customer reply replied 1 year ago
Good answer...how do I accept this?
Tax Professional: PDtax, Certified Public Accountant (CPA) 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.

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Tax Professional: PDtax, Certified Public Accountant (CPA) 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.

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Customer reply replied 1 year ago
How/were? The Big Stars up top are disabled.
Tax Professional: PDtax, Certified Public Accountant (CPA) 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>
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Customer reply replied 1 year ago
Good
Tax Professional: PDtax, Certified Public Accountant (CPA) 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>
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PDtax
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4,712
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