Originally published in PAOO December 30, 2009.
Every tax geek who visits New York should be sure to stop at Times Square to pay respects to the founder of one of our great principles – The Cohan Rule. As a Broadway producer Cohan had to spend lots of money entertaining and the like. The court thought that even though he didn’t have any receipts, he must have spent something and the IRS should recognize that.
Sadly the scope of the Cohan rule is constantly narrowed by legislation. Cohan, himself, would have been nailed by Code Section 274 and you can no longer deduct all the cash you put in the collection plate every Sunday.
The rule still has validity in other areas. So when you are audited and you don’t have receipts, try to have a good story. If it works, you should be sure to give your regards to Broadway.
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