reciepts, what more do they want??

What is the name of your state?
California

I got audited for 2001 because my daughter's father claimed her as a dependant and he was not sapposed to. I dug out receipts, mortgage statments, verything and beat the audit. Yippee.

The only part they didn't accept is the child care section. I had a babysitter, a friend, not a relative, who watched my daughter.

As this was a casual arangement I paid the sitter in cash.

I told this to the auditor and they asked for a receipt. They said that was all they needed.

The sitter wrote out an signed a reciept and I faxed it back into the IRS.

Then they called to say they could not accept it and needed my cancelled checks as reciepts. I didn't pay by check though, I paid with cash.

What more can I do? I could have the sitter write out individual receipts.

Or am I just out of luck because I didn't pay with a check?? This harldy seems fair. The total that I owe is only about $550, much less than the audit so I feel like I am kinda lucky, but then I know I paid for a sitter and should be entitled to this credit, any advice? Do I need a tax lawyer?

Make them state in writing exactly why they think they cannot accept the receipt. Then give them a receipt that meets their demands. Did the babysitter claim the money as income on her taxes? Did you supply them with her name, address, & SSN?

It sounds like they are taking the position that you didn't really pay for child care; you're making up 'expenses' so you can claim the child care credit. You might mention your awareness of the tax court rule that, if a taxpayer can show that she had a particular kind of expense, the IRS MUST allow a reasonable expense, even without a receipt. For example, you might submit copies of current day care checks to show that you're paying this sitter the same amount this year that you claimed you paid her last year. An enrolled agent or tax attorney might be helpful in writing the letter -- able to cite the cases that say the IRS loses.

If the IRS doesn't back off, you need to get an enrolled agent or tax attorney. Your pay the taxes, then sue for a refund.