How does the Cohan Rule apply to revenue estimation for cash-based businesses?

The Cohan Rule (based on a 1930 court case involving entertainer George M. Cohan) primarily applies to the estimation of business expenses, not revenue. For revenue reporting, the IRS expects much more stringent documentation and record-keeping. Cash-based businesses are actually required to maintain adequate records of all income. While the Cohan Rule might give you some flexibility with certain expenses if you have partial documentation, the same leniency typically doesn't extend to revenue. The IRS expects you to track and report all income, and they have methods to reconstruct your income if they believe you're underreporting. For your food truck situation, I'd recommend implementing a point-of-sale system that automatically tracks sales, even during busy periods. If that's not feasible, maintaining daily sales logs, bank deposit records, and inventory usage records can help substantiate your reported revenue. These methods create documentation that shows the flow of money through your business.

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Former revenue agent here. While the Cohan Rule technically applies only to expenses, there is a practical reality to how we handle cash business revenue audits. We do understand that perfect documentation isn't always possible, but we expect to see a systematic approach to revenue tracking. For a food truck, we would typically look at: - Food/supply purchases and typical markup rates - Register Z-tapes or POS system reports - Bank deposits (recognizing some cash might be used for immediate expenses) - Industry standards for similar businesses The key difference between expense and revenue estimation is burden of proof. With expenses, some estimation is permitted under Cohan. With revenue, the burden is higher, but we don't expect the impossible either.

Has anyone tried using those industry standard guides for restaurants/food service to back up their revenue claims? I've heard IRS sometimes uses those to estimate what your business "should" be making based on location, type, etc.