The Cohan Rule: Can You Deduct an Expense With No Receipt?

In 1930, a Broadway showman lost his tax records and accidentally created one of the most quoted principles in American tax law.

George M. Cohan, the man behind Give My Regards to Broadway, claimed substantial travel and entertainment expenses. He had no receipts for them. The Board of Tax Appeals disallowed the lot. The Second Circuit, in an opinion by Judge Learned Hand, disagreed with going that far. If it is clear a business expense was genuinely incurred, the court said, refusing any deduction at all is unfair, and the court should instead make as close an approximation as it can.

That is the Cohan rule. It is real, it is still cited, and it is far narrower than people hope.

What the rule actually says

Two conditions have to hold before a court will estimate anything.

1. There has to be credible evidence the expense happened. Testimony, bank records, contracts, the nature of the business. Something. The rule rescues a taxpayer with poor records, not one with no case.
2. There has to be a reasonable basis for the estimate. A court will not invent a number from nothing. If there is no foundation to build on, the deduction is disallowed.

And there is a sting in the original opinion that gets quoted less often. The court said the estimate should bear heavily on the taxpayer whose inexactitude is of their own making. Translated: the judge will round against you, deliberately, because the missing paperwork is your fault. Winning under Cohan usually means getting less than you actually spent.

The exception that swallows most of it

Here is the part that catches people out. In 1962, Congress added section 274(d) to the tax code, and it specifically overrides Cohan for a list of categories:

• Travel, including meals and lodging while away from home
• Entertainment, amusement and recreation
• Business gifts
• Listed property, which includes passenger automobiles

For anything on that list you need records showing the amount, the time and place, the business purpose, and where relevant the business relationship of the people involved. Estimates are not accepted. There is no approximation, no matter how convincing your story is.

Notice what that leaves. The expenses people most want to estimate, the client dinner, the drive across town, the conference trip, are precisely the ones where the Cohan rule does not apply. What remains is the more ordinary stuff: supplies, materials, subcontractor payments, and similar operating costs.

If you are reconstructing vehicle expenses from memory, the Cohan rule will not save the deduction. Mileage is listed property and needs contemporaneous records. See our note on the current IRS mileage rate.

So when does it actually help?

Realistically, in an audit or a Tax Court dispute, for non-274(d) categories, where a business obviously incurred costs it cannot fully document. A contractor who clearly bought materials for a job. A shop with inventory purchases and incomplete filing.

What it is not is a filing position. You do not put estimated numbers on a return and plan to cite Cohan later. You file based on records, and the rule exists as a backstop if records are lost and the matter is disputed.

The better move is not needing it

Every version of this story ends the same way: someone spent real money on their business and could not prove it, so they got less back than they were entitled to. The rule limits the damage. It does not undo it.

The useful thing to know is that missing receipts are usually less missing than they feel. The order confirmation is in an email account. The itemized invoice is sitting in an account on the vendor's website. The card statement establishes the payment. Most of what looks gone is actually recoverable if someone goes and looks, which is dull work nobody does at the volume required.

It is also worth knowing how long to keep receipts in the first place, and what counts as a deductible write-off before you worry about substantiating one.

The faster way: stop losing the receipts at all

Mylo connects to the email inboxes you already use and reads back through them, so receipts and invoices from months or years ago get recovered rather than written off. It also signs into store and service accounts like Amazon to fetch the itemized invoice that never got emailed, which is the document that shows what you actually bought rather than a card line with a store number on it.

Each one is matched to the bank or card transaction that paid for it and filed as a categorized expense with the original document attached. If a question ever comes up, the proof is on the entry instead of in a story about a shoebox. Mylo is free on iOS, Android and the web, and it works on the cards you already carry.

This is general information, not tax advice. Substantiation rules are fact specific and the stakes are real, so talk to a CPA or tax attorney about your own situation.

Sources: Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930); Internal Revenue Code section 274(d). Verify current requirements with the IRS or a qualified tax professional.