Receipts are proof of nothing though, i could fabricate them all day, are simple unprovable records all auditors are looking for, or do they require proof, and if so what proof could you possibly give them that you sold your tv for $200 and not $800, or that you sold your tv and not an ounce of weed?
If the IRS thinks all your receipts look legit, they won't investigate further. But if anything looks suspicious, they will investigate a few items and see if your story is true.
For example, if you write on your taxes that you gave $1,000 in charity to your church (a tax write-off)... if the IRS audits you, they will ask you for your receipts. You tell them you gave cash, you have none. They will then ask for the name of your church. They'll follow up to see if you go there regularly. If the pastor knows you, they might think your donations are legit. They won't trace further than this, they'll trust you.
However, if they ask your friends about your church, and they say you don't go, and the pastor never heard of you.... well the IRS will get upset, and charge you with fraud and fine you. They will then investigate deeper everything on your taxes, and audit you for previous years, and also audit you repeatedly in the future. YOU have to prove that you gave $1,000 in charity to your church, not the other way around. If the IRS is just suspicious, that's enough for them to charge you.
(If you wrote that you gave $50 to your church, however, they won't even think of pursuing it, so how MUCH money matters a lot)
Thanks for the explaination. The point really wasnt about how much you can get away with or how to dodge an audit, its about how you can follow the rules and what impact they have on our daily activities. In your example you gave the name of a church, that is simple to investigate, but if i tell them i sold my coin to an anonymous person over the internet who made a cash deposit and they ask for proof of that, then what do i tell them? I can give them the amount i sold for (hey there it is in my bank account), the amount of coin, the price per coin, the difference in value from when i obtained it, etc.... but i can never give them proof that the coin was in fact mine and that im not just pointing to some arbritrary address on the blockchain. They suspect that i was selling coin for a favorable longterm capital gains rate and not the newer coin i just purchased recently, i can only point to the address i have given them, then what happens?
I think people are vastly downplaying the impact this has on off-exchange and off-blockchain transactions, this could very well make anyone who doesnt register themself on an exchange be charged with some very serious crimes.