The IRS can piece together a taxpayer’s income and deductible expenses if it suspects the person didn’t correctly report them.
That’s what happened in one case when the tax agency performed a “bank deposits reconstruction” of a married couple’s income. The couple questioned the validity of the reconstruction, but a federal appeals court ruled that it was properly handled because the taxpayers didn’t keep adequate records or offer any evidence to rebut the IRS’s calculations.
It is vital to keep complete, coordinated records that support your tax return amounts - this will keep the IRS off your back if they should ever examine your return!