Can you file Schedule C for an ITIN taxpayer without records?

Short answer: Yes — but you need to do it the right way.

⚠️ The Real Rule Most Preparers Get Wrong

The IRS does NOT require perfect records to file a Schedule C (Form 1040).

Many ITIN taxpayers (cash businesses, gig work, construction, cleaning services, etc.) simply don’t have:

• Profit & Loss statements
• Receipts
• Bank statements
• Mileage logs
• Expense tracking apps

But that doesn’t mean you can’t file.

It does mean you must follow IRS-compliant reconstruction methods.

📚 IRS Authority: The Cohan Rule

You are allowed to estimate business expenses under a legal tax doctrine called the:

➡️ Cohan Rule

This rule allows taxpayers to claim reasonable and credible estimates of expenses when records are missing, as long as:

✅ The expense was likely incurred
✅ The amount is reasonable
❌ Not exaggerated
❌ Not fabricated

🧾 What You CANNOT Estimate

Even under the Cohan Rule, these require documentation:

• Mileage
• Travel
• Meals
• Entertainment
• Home Office

(Strict substantiation rules under IRC §274)

So if your ITIN client says:

“I drove a lot for work but didn’t track miles”

You cannot legally guess mileage.

Instead, you must use reconstruction techniques.

✅ Acceptable Reconstruction Methods for ITIN Clients

You can base income & expenses on:

Income Reconstruction

• 1099-NEC / 1099-K
• Deposits to bank accounts
• Cash logs
• Invoices
• Client statements
• Industry averages

Expense Reconstruction

• Prior year returns
• Vendor price lists
• Lease agreements
• Utility bills
• Testimony (written statements)
• Business type norms

Example:

A house cleaner earning $45,000 likely incurred:

• Supplies
• Transportation
• Equipment
• Uniforms
• Phone usage

You may allocate reasonable percentages based on business activity.

🛡️ PROTECT YOURSELF (As the Preparer)

When filing a Schedule C without records for an ITIN taxpayer:

Always Get:

✔️ Signed expense affidavit
✔️ Income reconstruction worksheet
✔️ Client statement of business activity
✔️ Due diligence notes

Have them sign something like:

“I declare that the income and expenses reported are accurate to the best of my knowledge and are based on reasonable estimates where documentation is unavailable.”

Keep this in your file in case of audit.

🚨 Preparer Penalties Apply to ITIN Returns Too

You can still be penalized under:

• IRC §6694 (Understatement of Tax Liability)
• Due Diligence requirements

Even if:

“The client insisted”

You are responsible for reasonable inquiry.

💡 Best Practice Strategy

For ITIN Schedule C clients:

1. Reconstruct income first
2. Determine industry expense ratios
3. Exclude §274 expenses unless supported
4. Document methodology
5. Get signed affidavit
6. Attach preparer notes (internal)