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Chris Jones

Paper, paper and still more paper!

When can these documents be destroyed? We get questions about tax backup documentation from clients often.  To assist you, we provide some ideas to carefully consider when deciding about destruction of any documents.

On the one hand, retention of backup records is essential if an audit by the IRS, state or local taxing authority occurs.  It is the taxpayer’s burden to provide sufficient proof and support for any tax position taken on a tax return.  Premature disposition of relevant documents that support or prove a tax deduction or tax position could have a disastrous effect.

Tax rules offer some guidance for minimum document retention periods. It is imperative to keep records such as receipts, canceled checks and similar documents supporting an item of income or deduction, or a credit appearing on a return until the statute of limitations expires for that return. Here are some key time limit rules for federal tax returns:

  • For most income tax returns, the statute of limitations is three years from the date you filed the return. However, there are some significant exceptions to the three year statute of limitation. When filing an estate tax return (706), be certain to check with your filing agent (accountant, CPA or estate tax attorney) to determine how long supporting records should be maintained.
  • There is no period of limitations to assess tax when a return is fraudulent or when no return is filed.
  • If income that you should have reported is not reported, and it is more than 25% of the gross income shown on the return, the time to assess is six years from when the return is filed.
  • For filing a claim for credit or refund, the period to make the claim generally is three years from the date the original return was filed, or two years from the date the tax was paid, whichever is later.
  • For filing a claim for a loss from worthless securities the time to make the claim is seven years from the date the return was due.
  • If you are an employer, you must keep all of your employment tax records for at least four years after the tax becomes due or is paid, whichever is later.

Additionally, it is often essential to check state and local statute of limitation rules before destroying files and records, as these may extend your retention period.

Keep in mind that you may need to retain and preserve documents for legal reasons other than taxation, such as because of insurance claims or to facilitate the transfer of assets in the case of a deceased family member. Some documents, such as death certificates and estate tax closing letters, should be kept indefinitely.

Lastly, a discussion with your tax attorney and /or accountant may be a prudent, wise and conservative course of action before destroying any documents or files.

- The Estate Planning Team
Rogers Sheffield & Campbell, LLP

This article is not intended to provide legal advice. For legal advice on any of the information in this post, please contact us directly, use the form to the right or contact us by phone at 805-963-9721.

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