In the less-than-perfect world we live in, chances are that you may not be able to produce receipts, bills or other written documentation for all the items on your return that are at issue (especially when the audit arises several years after the end of the tax year in question). That’s when you must turn to reconstructing your records or amassing the best proof you have for the IRS.
It’s perfectly legal to reconstruct your records in any way to provide adequate evidence that what you claimed on your return was, in fact, correct. The law does not require perfect recordkeeping habits—it’s just simpler that way.
For interest payments, medical expenses and so forth, one way to reconstruct records is to secure a statement or affidavit from the parties involved. Or, you may be able to prove up expenses by reviewing your credit card statements even though the receipts are missing. In the case of contributions of more than $250 to charitable organizations, however, you are required by law to have obtained a receipt by the time you filed the return claiming the deduction. Contrary to what some think, this rule does not throw you out if you lost the receipt. You have to prove only that you had it at the time. A statement from the charity or a photocopy of the receipt from its records is sufficient.
If you received or paid interest, get a statement from the second party. With a contribution of clothing to a charity, you might prove the value by itemizing the articles donated, their dates of purchase and the prices you paid. Try to show the IRS examiner a pattern of clothing purchases you have for keeping up with style and the stores where you buy clothing to indicate the level of prices you normally pay.
When statements from involved parties are lacking, try to amass facts that will prove a deduction. You may have a date book or diary that indicates you attended a seminar or event in which travel expenses were incurred. In the case of a casualty loss, for example, you might secure a copy of a police report to prove to the IRS examiner that the loss did, in fact, take place.