I am looking to learn whether I need copies of landscaping receipts for my rental property in order to be IRS audit ready, when the property manager has not provided them and, if so, if there is a reference (e.g., IRS, case law, legal blog) that I can share with the property manager to inspire them to get me these receipts?
SITUATION:
Our property manager generally provides us with both a monthly/annual ledger and receipts for all third-party vendor charges. In 2024, we changed vendors for landscaping from a personal gardener whom we had paid directly to the PM's preferred vendor. This preferred vendor never submitted receipts to the PM and so we are now learning we don't have them on file. The PM states that the vendor sends them one big bill for all of the properties they do landscaping for along with a master Excel sheet that they can't/won't share. They told me my ledger should suffice for my landlord record keeping requirements because they are an agent acting on my behalf.
We have told the property manager that we are worried that the charges could be disallowed in an audit because they do not meet the requirements of IRS record-keeping, and we know they (the property manager) will not participate in an audit as it is not part of our contract. We have always heard that landlords are asked for receipts in an audit, regardless if there is a property manager or not.
To be clear, the landlord ledger only captures the following information:
OVERALL - property ownership/landlords, property address, statement period, vendor business name and charge.
TRANSACTION - date, payee/vendor name, type (e.g., check), reference number (e.g., check #), description, cash in, cash out, balance. (To be clear, I don't have access to the checks they reference.)
IRS record-keeping rules say you need receipts AND supporting documents, thus from my point of view, the ledger is a supporting document and cannot be used in place of a receipt. A receipt should (1) be compiled by the vendor and no one else, (2) list the vendor address, (3) list service date(s), and (4) list other receipt requirements. None of these things are satisfied/captured by my ledger alone. I don't even have a copy of the checks the property manager sent to the vendor to be used in place of receipts.
While I understand I can likely claim the Cohen Rule in an IRS audit, I don't feel it is appropriate for them to expect me to hire a lawyer and spend the extra time having to argue the application of the Cohen Rule just because they couldn't give me receipts upfront. I've also read the Cohen Rule will only help you with not getting fined, however they IRS can still partially or fully disallow the deductions.
