Cohan rule

The Cohan rule is a common law principle that allows taxpayers, when unable to produce records of actual expenditures, to rely on reasonable estimates if there is some factual basis for them. This rule permits certain tax deductions to be claimed on the basis of such estimates. This rule was established in the United States by the Second Circuit Court of Appeals in Cohan v. Commissioner. In that case, the Court stated that absolute certainty in such matters is usually impossible and unnecessary, and that the tax authority should make the best possible approximation, giving less benefit to a taxpayer whose lack of precision is self-inflicted.

The Cohan rule is not universally applicable. For example, it does not apply to expenses subject to the strict substantiation requirements of Section 274(d) of the Internal Revenue Code.

[Last reviewed in August of 2025 by the Wex Definitions Team] 

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