Tag Archive for Tax Records
November 17, 2011 John R. Dundon II IRS Appeal, IRS Audit, IRS Enforcement, IRS Examination, IRS Mediation, IRS Penalties, Tax Abuse, Tax Credit, Tax Deductible Expenses, Tax Fraud, Tax Guidance & Preparation, Tax Problems & Requests, United States Treasury Treasury Regulation 1.274-5 allows for a deduction without complete documentation if you can show that you have ‘substantially complied’ with adequate adequate record keeping requirements.
This statute is code for … be nice to your examiner.
Basically the practice of disallowing amounts claimed because there is no documentary evidence available to establish precise amounts beyond a reasonable doubt ignores commonly recognized business practice as well as the fact that proof may be established by credible oral testimony. As such close approximations of items not fully supported by documentary proof can frequently be established through reliable secondary sources and collateral evidence.
It is always best practice to inform the examiner what has been reconstructed in that it builds credibility. It’s also best to demonstrate that your expenditures are reasonable in relation to income, and that if questioned you can prove that your other financial affairs are in order. The bottom line is that tax records can be and routinely are reconstructed to serve as substantiation if under examination.
However if you are a hot head and freak out on your examiner or demonstrate any other behavior that may lead an examiner to not give you the benefit of the doubt as to the efficacy of collateral evidence you may as well just take your matter to appeals and start the process over. When it comes to reconstruction of evidence it seems to all be about demonstrating and maintaining personal credibility as a law abiding human being. If you are not that then I suggest saving all of your receipts.
The length of time you should keep a document depends on the action, expense, or event the document records.
Generally, you must keep your records that support an item of income or deductions on a tax return until the period of limitations for that return runs out.
The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or that the IRS can assess additional tax.
The below information contains the periods of limitations that apply to income tax returns.
Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date.
Note: Keep copies of your filed tax returns. They help in preparing future tax returns and making computations if you file an amended return.
You owe additional tax and situations (2), (3), and (4), below, do not apply to you;
keep records for 3 years.
1. You do not report income that you should report, and it is more than 25% of the gross income shown on your return;
keep records for 6 years.
2. You file a fraudulent return;
keep records indefinitely.
3. You do not file a return;
keep records indefinitely.
4. You file a claim for credit or refund* after you file your return;
keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
5. You file a claim for a loss from worthless securities or bad debt deduction;
keep records for 7 years.
6. Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.
6. If the records are connected to assets:
keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. You must keep these records to figure any depreciation, amortization, or depletion deduction and to figure the gain or loss when you sell or otherwise dispose of the property.
Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the bases of the property you gave up, increased by any money you paid. You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition.
What should I do with my records for nontax purposes?
When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. For example, your insurance company or creditors may require you to keep them longer than the IRS does.
July 18, 2007 John R. Dundon II Business Expense, Cash Transaction, FBAR, IRS Appeal, IRS Audit, IRS Collections, IRS Enforcement, IRS Examination, Paying Taxes, Tax Deductible Expenses, Tax Guidance & Preparation In a tax emergency, would you be ready? Well–organized records not only help you prepare your tax return. They also help you answer questions if your return is selected for examination or prepare a response if you are billed for additional tax.
Fortunately, you don’t have to keep all tax records around forever. There are laws known as statutes of limitations that impact how long you must keep receipts, canceled checks, and other documents that support an item of income or a deduction on your return.
Generally, for questioning the amount of tax you reported or making an assessment of additional tax, the IRS has 3 years from the date you filed the return. For filing a claim for credit or refund, you generally have 3 years from the date the original return was filed, or 2 years from the date the tax was paid, whichever is later. For either purpose, returns filed before the due date are treated as filed on the due date. There is no statute of limitations when a return is fraudulent or when no return is filed.
You should keep some records indefinitely, such as property records. You may need them to prove the amount of gain or loss if the property is sold.
Generally, income tax returns should be kept for 3 years from the date the return was filed. They could help you prepare future tax returns or amend a return.
For more information on recordkeeping requirements for individuals, order Publication 552, Recordkeeping for Individuals.
If you are an employer, you must keep all your employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later.
If you are in business, there is no particular method of bookkeeping you must use. However, you must clearly and accurately show your gross income and expenses. The records should substantiate both your income and expenses.
Additional info – required documentation for taxpayers with business expenses:
Tax Information