I just finished my Jewish holidays- and then was inundated with folks who failed to file their taxes on the 15^th of April.  And, what did they do for the ensuing six months?   From what I can tell, absolutely nothing.  Three of them brought the ubiquitous shoe box- you know, a year’s collection of receipts.  The problem?   Most of those receipts were printed via heat sensitive ink- and now, 10 to 22 months later, they are a mess of grey blobs, having faded to obscurity.

And, you know the rule- no receipt, no deduction.  At least that is what folks like me- and the IRS- have been trying to bludgeon into your heads.   Even though we know that this is the optimum case, not the ultimate decision.

What?  Heresy?   Well…. Yes.  But, the Yankee Doodle Dandy, George M. Cohan, won his case against the IRS over just such rulings. Way back in 1930 (Cohan v. Commissioner, 39 F.2d 540, Second Circuit), Cohan brought his case against the IRS.  Since he was traveling (and there were no copiers or scanners then), he did not have many receipts; the IRS disallowed his travel and entertainment expenses.  The IRS stated the maxim- no receipt, no deduction.  Cohan counter-claimed he was always traveling and always busy and just couldn’t maintain the records well.  The IRS hit Cohan up for a ton of bucks.

And, Cohen took the IRS to court.  This was before there was a tax court- so he brought his complaint to the Board of Tax Appeals.   This court gave the decision to the IRS, who affirmed the statement- no receipt, no deduction.   But, Cohan persevered.  He went to the Second Circuit Court of Appeals.

Judge Learned Hand (you gotta love a Judge with such a name) provided a slew of important tax decisions.  This was one of them.   He ruled that “other credible evidence” can be employed to justify one’s legitimate expenses.  Judge Hand agreed that Cohan’s recollection of his cab, rail, and meal tabs, hotels, tips, etc. would be sufficient for him to deduct the expenses and lower his income subject to taxation.

Don’t get too excited.   The IRS may have allowed this exception to obtain for travel and entertainment. But, it didn’t given in often since then.  And, the laws have also changed- the tax code now has gotten much more stringent about cellphone, computer, automotive, meal, and travel expenses.   So, it’s harder to claim the Cohan exception applies.

And, that ruling has been chiseled down since.  The Tax Court refuses the exception for charity.  This determination became even more stringent when the US Congress changed the charitable deduction laws in 2006.  Now- even for cash donations (yes, that $ 18 donation in cash) must have a receipt.  And, if the value of the donation exceeds $ 250, you must have a timely receipt for that donation from the approved charitable entity to claim the deduction.  (The issue is that one may receive goods or services in concert with their charitable donation- like that $ 120 you gave NPR and got a coffee mug.  The IRS is prone to believe that coffee mugs cost $ 120.)

This donation ruling was affirmed by the Tax Court recently.  In Gomez versus the Commissioner (Summary Opinion 2008-93), the Tax Court denied the deduction to taxpayers who donated $ 6100 to their church and did not obtain written acknowledgement for their 10 checks.   The couple needed proof that there were no goods or services- and if there were, what that value was.   However, in Ragassa versus the Commissioner (Summary Opinion 2009-166), the ruling did let the taxpayer deduct his weekly cash donations to the charity plate.  He claimed $ 100 donation each time he attended church (once a month) in Boston and Washington- and augmented his charity by adding clothes, on occasion.  And, since he was going to school, working two jobs (hence the two cities), the IRS should have just been quiet and accepted the donation- as the Tax Court ruled here.

So, where does it leave you?  In the no receipt, no deduction camp.  Because it will be way too hard to win your case otherwise.  (I do agree there could be an exception for someone who is a consultant, visiting 4 to 10 clients a week and grabs a quick lunch at a fast food joint.  Those expenses for the year won’t exceed  $ 1800 and would probably fall under the Cohan exception.)

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