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Cryptocurrency can Being a new topic for the IRS and taxpayers to tackle it but tax records are certainly not a new problem. Since the dawn of the income tax, some taxpayers have struggled with this, and the IRS knows it. At tax hour, many taxpayers find themselves looking for receipts, looking in filing cabinets and drawers.

These days, most documents are in computer files and with online services. . In fact, with a large number of people who are increasingly relying on cloud services and other types of similar documents, the problem of today 's documents can be more serious than ever before. It was there decades ago. There is a lot of talk today about residential school investigations, enforcement and audits.

Still, our income tax system is largely focused on self-assessment. We mainly do our own reports, starting with self-reporting on our own tax returns. It's where everything starts, and for self-declaration, you need records. In addition, you must be able to save what you put on your tax return if you are asked.

Remember, you sign tax returns under penalty of perjury. Do not dial numbers and do not estimate, except as a last resort. In general, receipts and tax evidences are critical. In fact, the Internal Revenue Code and the Treasury Regulations are full of justification requirements. Receipts, invoices and canceled checks matter a lot.

If you are the subject of an audit and you have to account for any capital gain, especially in the long run, when the tax rate is reduced, you may need to be present documents to prove your position. You must be able to prove any tax base you claim.

Keeping a Register

It is your responsibility to keep the documentation and to carry out the archiving. What happens if an exchange you use suddenly stops working and disappears? You might suddenly not be able to get your records. This could mean not being able to establish your base or your waiting period.

This is one of the reasons why you need a backup system. However, you can keep it straight, try to keep good records of all your trading and investing activities. This is true with cryptocurrency or any other investment asset.

Downloading and exporting transaction details or copying all of this works however for you. Since purchases made with cryptocurrency are provisions, keep a record of the dates, amounts and details of these provisions too. What happens though if there are holes in your discs?

But otherwise ..

It is not known if the IRS will apply different standards to cryptocurrency disks. However, the justification requirements are likely to be similar in this context to others. Fortunately, there are positive historical cases in which taxpayers have won tax cases even if their records were downright lousy.

That is to say, sometimes, the absence of a receipt can not prevent you from claiming a deduction. in court if you find yourself in a fight with the IRS. In fact, if you can not find your documents or receipts, it is useful to remember the so-called Cohan rule. This tax rule originated in the Cohan v. Commissioner, 39 F.2d 540 (2d Cir., 1930).

George M. Cohan was a Broadway pioneer, author of hits such as "Give My Regards to Broadway" and "Yankee Doodle Boy". Cohan had a big appetite, and he was spending a lot of money. His statue is still in Times Square in New York. But the IRS refused Cohan's many travel and entertainment expenses because of lack of revenue

You see, Cohan often paid money, and he sometimes took dozens of people for dinner. The IRS required receipts for proof, and Cohan did not like being actually called a liar. He did not like losing tax deductions either. Thus, he took the IRS to the Tax Appeals Board, the forerunner of the US Tax Court.

He confirmed the IRS, the receipts being the stock in the trade of a tax system. However, Cohan will not give up and will appeal to the second circuit court of appeal. There, the IRS thought that it had a solid case, advocating for rigidity in tax records. However, the second circuit shook the IRS on its heels by announcing what would become known as Cohan's rule.

To date, it serves as an exception to the stringent requirements of the IRS document retention. It allows taxpayers to prove by "other credible evidence" that they have actually incurred the expenses for deductible purposes. This means that the testimony may be sufficient even if you do not have receipts.

Cohan rule

Will the Cohan Rule help and IRS already suspect when it comes to Bitcoin or other digital currency? It's hard to say, but it would be a big mistake to think that you do not need receipts. You should never consider the Cohan Rule as a release card from prison with respect to taxes or tax records.

In fact, the IRS is still lukewarm on this rule nearly 90 years after the case was decided. The IRS does not like it, and the Cohan rule does not always work in court. Cohan's rule was applied conventionally to travel and entertainment expenses

However, it could apply to virtually any article not specifically subject to increased justification requirements. under the Tax Code or Treasury Regulations. There are special rules of justification for certain travel and meal expenses, private cars, computers and cell phones. In these cases, the Cohan Rule can not apply.

The Cohan Rule does not permit a complete lack of justification. On the contrary, it allows another form of justification. If you can convince the IRS by oral or written statements or other evidence to support and can give a reasonable approximation of the expense, you may be entitled to the deduction despite your lack of documentation .

The Tax Court applied the Cohan rule to deduct expenses such as tuition fees, beauty license fees, gambling losses, eligible research activities , construction and distribution of other expenses signs. However, travel and entertainment costs may be the most classic. Even charitable contributions have sometimes been allowed under the Cohan rule.

However, you can not use the Cohan Rule when there are strict strict justification requirements, as there are for some charitable contributions. These rules require that you have a receipt, even for small cash donations, including $ 20 put in the collection plate on Sundays and, for donations over $ 250, a written acknowledgment from the charity's organization. before filing your tax return.