IRS Tax Relief with the Cohan Rule

Taxpayers facing IRS debt problems due to unfiled tax returns are not alone; a typical Tax Defense Partners non-filing client has between 4-7 years of unfiled tax returns.  The good news is that even if they have no documents, we can still file the missing tax returns and begin the process of getting these taxpayers into tax compliance. This is possible due in large part to vaudevillian entertainer, George M. Cohan, who won a groundbreaking tax audit case over 80 years ago that set precedence for cases today. An Accounting Web article titled Give your Regards to the Cohan Rule explains how Conan’s case began the “Cohan rule” allowing tax professionals to use statistical data to determine taxable income for taxpayers with little to no proof of documentation.

George M. Cohan, as described by Wikipedia, was an American entertainer, playwright, composer, lyricist, actor, singer, dancer and producer known for song standards such as “Give My Regards to Broadway”, “The Yankee Doodle Boy” and “You’re a Grand Old Flag”. There is even a statue in his honor in Times Square. But while we can thank Cohan for his musical contributions, the Accounting Web article suggests his most enduring legacy could be his 1930’s US Tax Court case (Cohan v. Comm’r, 39 F.2d 540 (2d Cir. 1930).

In the landmark decision, Cohan was permitted to deduct certain business expenses, even though he didn’t have all the receipts needed to back up his claims with certainty. According to the article, under the Cohan rule, the court can approve deductions if it’s convinced that expenses were actually incurred, even if the records don’t measure up.

In tax resolution cases since we need to file their back tax returns, we can employ the Cohan Rule to help taxpayers that do not have their records for whatever reason. The rule allows us to use national standards released by the IRS and other tax agencies each year. The Almanac of Business and Industrial Financial Ratios, or as I call it “the bible”, allows us to access an SIC code filing for the taxpayer who has no previous financial information. We then determine on average what the IRS will accept all these deductions and the income in spite of the fact that they cannot produce any documents.

The IRS understands that a business person making money also has expenses, such the case for George M. Cohan. It’s clear his showman’s legacy will continue to live on and be praised. Hopefully, Cohan will equally be remembered for winning his IRS tax audit case over eighty years ago that continues to make it possible for tax experts like me to help delinquent taxpayers and small business audit victims who need it the most.

More Tax Help, IRS News and Tax Relief Tips:

  1. Michael Rozbruch Interviewed in Opportunist Magazine
  2. Talking Tax Resolution with Fox 11 Tony Valdez
  3. Tax Resolution Services, Co. Saves Client $35,000
  4. Ask the Certified Tax Specialist – Small Business Back Taxes
  5. Tax Expert Gives Tax Filing Info on Fox News

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One Response to “IRS Tax Relief with the Cohan Rule”

  1. TaxMan TV Episode Explains Importance of Tax Prep Says:

    [...] the Cohan Rule (if needed) to determine national standards for income and deductions. The IRS will accept [...]

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