Define: Cohan Rule

The Cohan Rule is a legal principle that allows taxpayers to estimate and deduct certain expenses that are not fully substantiated, as long as they can provide a reasonable basis for the estimate.

The Cohan Rule can be applied when a taxpayer is unable to provide complete documentation for certain expenses but can provide a reasonable estimate of the amount.

The Cohan Rule can be used to deduct various types of expenses, such as business expenses, travel expenses, entertainment expenses, and other similar costs.

There is no specific limit to the amount that can be deducted under the Cohan Rule. However, the estimate must be reasonable and supported by credible evidence.

The IRS generally views the Cohan Rule with skepticism and prefers taxpayers to provide complete and accurate documentation for all expenses claimed.

To support an estimate under the Cohan Rule, taxpayers should provide any available evidence, such as receipts, invoices, bank statements, or other relevant documents, that can reasonably substantiate the claimed expenses.

The Cohan Rule can be used for most types of expenses, as long as the taxpayer can provide a reasonable estimate and supporting evidence. However, certain expenses, such as personal expenses, may not be eligible for deduction under the Cohan Rule.

Yes, the Cohan Rule can be used in tax audits to justify deductions that are not fully substantiated. However, the burden of proof lies with the taxpayer to demonstrate the reasonableness of the estimate.

While there are no specific limitations or restrictions to using the Cohan Rule, taxpayers should be aware that the IRS may challenge the estimate and require additional evidence or documentation.

The Cohan Rule is primarily applicable in the United States and may vary in its application in other jurisdictions. Taxpayers should consult with local tax professionals to determine if a similar principle exists in their jurisdiction.