Sing a different tax story

Are you lacking records needed to support certain business deductions? You might be able to tap dance around the requirements.

Strategy: Rely on the “Cohan rule” in a pinch. Based on an ancient landmark case involving an iconic entertainer, you may be able to deduct some expenses, even though you don’t have all the theoretically required records. (Cohan, 39 F. 2d 540, 2d Cir. 1930) Just be forewarned that the Cohan rule isn’t foolproof. Here’s the whole story: George M. Cohan was a performer best known for penning songs like “Give My Regards to Broadway” and “I’m a Yankee Doodle Dandy.” He claimed substantial deductions for business travel and entertainment (T&E) expenses but said he was “too busy” with his show business activities to take the time to document the expenses. Naturally, the IRS said this was a no-no, Nanette. Eventually, the case made its way to the 2nd Circuit Court. The judge presiding over the matter, Judge Learned Hand, is as famous in legal circles as Cohan is in his career. Judge Hand refused to kick the case up to the U.S. Supreme Court. Instead, he issued a stinging rebuke to the IRS by allowing Cohan’s deductions because there was credible evidence that he had incurred some deductible expenses. Thus, the Cohan rule was born.

Tip: Ironically, due to subsequent tax law changes, the Cohan rule can’t be used to justify travel expense deductions, but it can still salvage write-offs for other business expenses.