What Happens If You Get Audited and Don’t Have Receipts?

Few events worry small business owners more than receiving an Internal Revenue Service (IRS) audit notice. Some businesses do everything right and are still audited, which underscores the importance of maintaining meticulous records throughout the year. Your records and receipts help defend your interests as a taxpayer and prove your activities were legitimate. But what happens when you've lost or misplaced those receipts? While missing key records isn't optimal, there are methods to prove your expenses and protect your business.

Use this blog to understand what happens during an audit, why your receipts are necessary, and the steps to recover or rebuild your records. And if you'd rather be guided by expert support, 1-800Accountant, America's leading virtual accounting firm for small businesses, has your back. Our teams help clients organize, defend, and minimize the potential for future audit-related issues. 

How do I know if I’m being audited by the IRS?

For most of its existence, the IRS had a policy that notices and official communications were sent exclusively through the United States Postal Service. Previously, the IRS wouldn't contact taxpayers by phone, text message, or email to combat scammers and other unscrupulous actors. The IRS has updated its communications policies for 2025/2026 to now include digital delivery options via secure IRS.gov accounts.

Regardless of method, once you do receive official notice from the IRS of an audit, it's time to spring into action. Your IRS audit process should include developing an action plan, creating a communication strategy, and preparing the necessary financial statements and supporting documents to mount the most robust defense.

Common audit triggers to watch out for in 2026 include: 

• Large charitable contributions and related tax deductions

• High Schedule C expenses

• Cryptocurrency activity

• Cash-heavy businesses

• Inconsistent income reporting 

Does the IRS verify receipts during an audit?

Underreported income is a common reason a small business would be targeted for an audit. When deciding whether to conduct a business tax audit, the IRS uses AI-based systems to cross-reference your industry and locality to determine the average deductions for a similar business and the amount involved.

The IRS will verify copies of receipts for accuracy during audits for underreported income or other issues. Common receipts the IRS requests include: 

• Meals

• Travel/entertainment expenses

• Office expenses

IRS proof of expenses is also acceptable in digital form under Publication 583, which includes card and bank account statements, invoices, and accounting software records. If the materials provided fail to pass IRS receipt requirements for the items in your tax return, the IRS will request additional materials. 

What happens if you get audited and don't have receipts?

If you get audited and don't have receipts, it's not an immediate cause for panic. Missing receipts doesn’t automatically mean penalties!

The IRS understands that receipts can be misplaced and will accept alternative forms of documentation. In place of original receipts, you can provide:

• IRS Form 8275, Disclosure Statement, to disclose uncertain deductions.

• Reconstructed expense logs that are supported by statements, vendor correspondence, and other materials.

Note that the IRS may accept “credible reconstruction” under the Cohan Rule, as long as it’s reasonable and well-documented.

Without proper documentation, deductions may not be accepted, and you could be subject to additional taxes, penalties, or interest. It's always a good idea to consult with a tax professional who specializes in audit defense and can provide guidance.

Steps to Recover or Rebuild Your Records

Chances are, you rely on physical and digital receipts and materials. If you'll submit digital materials to the IRS, ensure you abide by these best practices: 

1. Review business bank and credit card statements.

2. Contact vendors for duplicate invoices or digital receipts.

3. Search email receipts or accounting software (ClientBooks, QuickBooks, Xero, etc.).

4. Use cloud storage and digital expense tracking to prevent future issues.

Pro tip: Save digital copies of all receipts for at least three years, or seven years if you claim significant losses.

Are There Penalties or Fines If I Can’t Recover Receipts?

If the IRS accepts the report you've generated detailing your business expenses, you will not receive a penalty, currently ~8% for underpayment, thus concluding your audit. But there is a chance that the IRS will reject some or all of your deductions, finding that they are not permitted. This is called a “disallowed deduction,” and it can seriously impact your operations.  

There are financial consequences associated with disallowed deductions. Every deduction the IRS disallows will be added to your taxable income, which means your tax bill will increase. The increases could push you into a higher tax bracket, which means you will pay more on your taxable income.

In addition to an increased tax liability, you will also be responsible for interest and fees associated with your disallowed deductions. If these penalties are not paid in a timely manner post-audit, the IRS may also hit you with additional penalties.

Proactive communication during this time may trigger the IRS to reduce penalties for being a compliant taxpayer. However, failure to cooperate can lead to an accuracy-related penalty of 20%. 

How to Prevent Future Audit Issues

While your small business can receive an audit letter for virtually any reason, there are practices and protocols that you can implement to help prevent future audit issues. And if you do receive an audit notice, you'll be in the best position possible to defend your taxpayer rights.

Prevent future audit issues by: 

• Keeping detailed, consistent records.

• Reconciling books monthly.

• Working with a professional bookkeeping service.

• Using mileage records and receipt apps to stay organized. Organized records are paramount during office audits and correspondence audits.

• Keeping IRS audit correspondence centralized and backed up digitally.

Protect Yourself with Professional Audit Defense

IRS audit notices are never fun, but they're more manageable and less distracting with our robust Audit Defense solution. If you’ve received an audit notice or misplaced documentation, our experienced audit defense team can help develop a communication strategy while rebuilding your financial records. With 1-800Accountant's support, you never face an audit alone.

Keep your business audit-ready year-round with 1-800Accountant's affordable, tax-deductible solutions, including full-service Bookkeeping and Tax Advisory. This way, you'll have accurate records that are up to date, freeing you to focus on what matters: running your business.

All it takes is scheduling a free 30-minute consultation with a small business expert to get started. 

FAQs 

1. Can I use bank statements instead of receipts in an IRS audit? 
   Yes — the IRS accepts bank or credit card statements as alternative documentation if they clearly show business-related transactions. Accurate financial records are essential to proving reasonable expenses during an audit and while preparing and filing taxes.

2. What is the Cohan Rule, and how can it help? 
   The Cohan Rule allows taxpayers to estimate expenses if original receipts are missing, provided they are reasonable and well-supported. Credible reconstruction is the key.

3. How far back can the IRS audit my business? 
   The IRS can typically go back three years to audit your business, but up to six for significant errors or fraud. It's important to save copies of all receipts for that period, or seven years if you've claimed significant losses.

4. Can a CPA represent me during an audit? 
   Yes, a licensed CPA or enrolled agent can represent you before the IRS during a tax audit, typically yielding the most favorable IRS audit ruling. A tax attorney can also represent you during an IRS audit in tax court.

5. Will I go to jail for missing receipts? 
   No, missing receipts during audit won't typically land you in jail. Audits conducted by an IRS agent are civil, not criminal, unless there’s evidence of intentional tax fraud uncovered during an investigation. If you're wondering, can you get audited without receipts? The answer is yes.