The core rule

Cohan v. Commissioner , 39 F.2d 540 (2d Cir. 1930), lets courts approximate a deduction if the taxpayer proves an expense occurred but lacks full documentation. The Tax Court often applies a “reasonable approximation” approach ( Vanicek v. Commissioner , 85 T.C. 731 (1985)), but only when some credible evidence exists.Cohan v. CommissionerVanicek v. Commissioner

Where Cohan does not apply (strict substantiation)

• Travel, meals, lodging, entertainment, and gifts subject to IRC §274(d) and Treas. Reg. §1.274-5.
• “Listed property” (e.g., passenger autos) under §280F and related §274(d) rules.
• These require receipts, dates, amounts, business purpose, and, for vehicles, mileage logs—no estimates allowed.
• See IRS Pub. 463 (Travel, Gift, and Car Expenses) and Pub. 535 (Business Expenses) for the strict record requirements.

What auditors typically look for

• Baseline proof: Bank/credit card statements, invoices, logs, or calendars that show an expense actually happened.Baseline proof:
• Business purpose: Notes tying the expense to income production; vague “business” labels are often disallowed.Business purpose:
• Plausibility & consistency: Totals must align with the type and size of the business; outlier amounts draw scrutiny.Plausibility & consistency:
• Category limits: If §274(d) applies and you lack strict proof, agents will typically disallow rather than estimate.Category limits:

Practical thresholds (how agents decide)

There is no official dollar “threshold” that guarantees allowance. In practice, agents may allow reasonable estimates for non-§274(d) expenses when:

• You provide some contemporaneous evidence (e.g., statements + business calendar) to show the expense occurred.
• The amounts are consistent with industry norms and prior-year patterns.
• You separate personal vs. business portions (e.g., allocate mixed-use costs).

If you provide no support, or the expense is in a strict-substantiation category, the common outcome is full disallowance.

How to strengthen your position

• Keep receipts (paper or digital), statements, mileage logs, and brief purpose notes.
• For vehicles: maintain mileage logs; without them, §274(d) generally blocks estimates.
• Rebuild records early: get vendor duplicates, calendar entries, emails, and affidavits to demonstrate the expense occurred.
• Track capital vs. current expenses and asset basis to support depreciation.

References

• Cohan v. Commissioner , 39 F.2d 540 (2d Cir. 1930).Cohan v. Commissioner
• Vanicek v. Commissioner , 85 T.C. 731 (1985) (reasonable approximation standard).Vanicek v. Commissioner
• IRC §§ 162, 274(d), 280F; Treas. Reg. §1.274-5.
• IRS Publication 463 (Travel, Gift, and Car Expenses); IRS Publication 535 (Business Expenses).