How long should one hold onto documents?

[DrDeth]

@robby

Secondly, it depends on what they are auditing you for. There are many exceptions to the three-year statute of limitations. For example, if the IRS thinks that you substantially underreported your income (>25%), they have six years from the time that you file to audit you.

Next, if the IRS believes you are guilty of fraud (which the IRS gets to decide is the case or not), there is no statute of limitations.:

Yes, but in the case of the Six year Sunstancial Understatement, they have to prove the 25% understatement- the burden of proof is upon them. And, “income” is not deductions. If they are auditing you for deductions, they have 3 years. Your reciepts will avail you naught if they can prove 25% Understatement of Income, as reciepts don’t substanciate income.

Next- Fraud. The IRS also has to prove Fraud, and again the burden of proof is on them, not you, and here again, all the reciepts in the world won’t help if they can prove Fraud. They won’t be checking your more or less legit expenses where reciepts woudl help.

If the IRS can’t get either the 25% Understantment of Income or Fraud to stick, and they have let the 3 year statute go past, then they have barred the entire Statute, and can’t assess or collect a nickel. The IRS gets to decide nothing- either you agree to the “proposed assessment”, or you default, or you lose in Tax Court, in which case the Tax Court decides. Basicly, Civil Fraud is almost never an Audit issue, it gets thrown away in Appeals or in a pre-Court bargain. Except when you plea-bargain down from Criminal Tax fraud.

It is true that during a long audit, the IRS will often ask you to extend the SOL, but in that case, the audit started before the 3 years is up. Quite a bit before, mind you. The IRS likes at least a year remaining on the SOL before they start an audit, preferably two.

My Bro is an Enrolled Agent, and a retired IRS agent. For a year he was District Statute Coord.

His source- is IRS Practice and Procedure by Michael I. Saltzman. Not to mention the IRC, the Regs, and the IRM.

http://www.irs.gov/retirement/article/0,,id=135304,00.html
*The Internal Revenue Service (IRS) makes every effort to examine tax returns as soon as possible after they are filed. To ensure timely tax examinations, Congress has set deadlines for assessing taxes and making refunds or credit of tax. These deadlines are called statute of limitations. Without statute of limitations, a tax return could be examined and tax assessed, refunded, or credited at any time, regardless of when the return was filed.

Statutes of limitations generally limit the time the IRS has to make tax assessments to within three years after a return is due or filed, whichever is later. That particular date is also referred to as the statute expiration date.
*

p1035.pdf

Or if you don’t trust the IRS:
http://accountantsofficeonline.lebeaucpa.com/Shared/ShowNewsletter.aspx?FirmID=A9565078856D91E19AD01F9CADE8F4F3&NewsletterID=B81C31E4EFA13D69D9CE01E71CF6E802&NSType=1
*Old Tax Returns. The general rule for income tax audits is that the IRS has three years from either the due date of a return or the date the return is actually filed (whichever is later) to initiate an audit. For example, if you filed your 1999 tax return on August 15, 2000, under a four-month automatic extension, the IRS would have until August 15, 2003, to audit that return. If you kept the 1999 return until January 1, 2004, the general limitations period for a tax audit would have expired. Some taxpayers obtain additional 60-day extensions for the filing of their returns, delaying the due date to as late as October 15 of the year following the year to which the return relates. To be on the safe side, you should keep your return until the first day of the year that is five years later than the year to which the return relates. For example, a 2000 return should be kept until January 1, 2005. This rule of thumb ensures that the three-year statute of limitations for the return will have expired by the time you throw the return away.
2. Income Tax Returns Involving a Substantial Understatement of Income. If there is any possibility that you have neglected to declare more than 25 percent of your income on a return, you are playing a different, and much more dangerous, game. The IRS has a six- year statute of limitations (rather than three) to audit such returns. They must prove, of course, that more than 25 percent of the taxpayer’s income was omitted from the return. Still, if this is a possibility, you should keep your return until the first year that is eight years later than the year to which the return relates. For example, 2000 returns should be kept until January 1, 2008, if substantial understatement is a potential problem.

3. Income Tax Returns Involving Fraud. If you intentionally file a fraudulent return, there is no statute of limitations for an audit. Therefore, the IRS can come after you at any time. Of course, if a taxpayer is intentionally defrauding the IRS, record keeping is probably not an issue in the first place.

Note this "They must prove, of course, that more than 25 percent of the taxpayer’s income was omitted from the return.

http://articles.chooselaw.com/general/view/Proof-Of-Tax-Fraud.209.html
“For example, the indication standard seems to reflect confusion between the lesser burden of proof imposed on the Commissioner to establish civil fraud and the element of the intent to evade implicit in the statutory term fraud. The quantitative difference in the burden of proof has some effect on the qualitative evidence cited regarding the fraud issue.”

http://www.wtopnews.com/?sid=1335157&nid=114
"*The IRS bears a unique burden of proof in criminal tax cases. It must show not only that someone broke the law, but he or she did so with willful, bad purpose to defraud the government.

A few defendants have won acquittal because the jury thought they sincerely believed they did not have to pay."*

[robby]

@DrDeth

“…To be on the safe side, you should keep your return until the first day of the year that is five years later than the year to which the return relates.”

“…Still, if this is a possibility, you should keep your return until the first year that is eight years later than the year to which the return relates. For example, 2000 returns should be kept until January 1, 2008, if substantial understatement is a potential problem.”

“…If you intentionally file a fraudulent return, there is no statute of limitations for an audit. Therefore, the IRS can come after you at any time.”

DrDeth, your own cites indicate that you should keep your tax returns from four to seven years after filing (five to eight years after the year to which the return relates).

I stated above that you “should hold onto tax returns for seven years at a minimum simply to be able to defend against audits,” a figure which seems more on the mark than your original assertion that:

@DrDeth

Tax Returns have a 3 year Statute of Limitations. I’d keep the actual return for a couple years longer, but toss all supporting docs every three years…

Yes, this means robby is wrong about his 7 years.

So who is wrong here, exactly?

@DrDeth

Next- Fraud. The IRS also has to prove Fraud, and again the burden of proof is on them, not you…

That’s all well and good, but how do you defend yourself against a fraud accusation with no records? My point was simply that the IRS gets to decide whether or not to accuse someone of fraud. I understand that they then have to prove this in court.

[vertizontal]

There’s no point in saving a recurring bill after the payment is recorded on the next one. You paid it, they agree with you, what more can go wrong later?

Right now I’m in the middle of resolving about 6 identity theft problems. Some of the companies I’m in dispute with want me to send documents that confirm my actual address during all of 2007. They say they want things like utility bills and so forth. One company in particular wants 4 different types of proof like that. I’m not sure how I’m going to come up with all of those, because once I pay a utility bill or make a mortgage payment, I’ve just been throwing away the part I don’t send back with the check. I wish I’d kept those.

[Cillasi]

If the expenses are used to document write-offs, income tax deductions, etc., hold on to those that you use.

Once your bill payments that don’t impact other things are made and acknowledged by each creditor (usually on your next monthly statement) it’s safe to discard the bills and your canceled checks, etc.

@Great Dave

(IMHO or GQ? I suppose there is a factual answer, so GQ)

The wife and I have finally set up an office area in the house, and I’ve been tasked with organizing the desk. We have been holding on to old bills, which we notate with how and when we paid it. ISTR that taxes should be held for at least 7 years, but what about credit card, mortgage, and utility bills?

[DrDeth]

@robby

DrDeth, your own cites indicate that you should keep your tax returns from four to seven years after filing (five to eight years after the year to which the return relates).

I stated above that you “should hold onto tax returns for seven years at a minimum simply to be able to defend against audits,” a figure which seems more on the mark than your original assertion that:So who is wrong here, exactly?

That’s all well and good, but how do you defend yourself against a fraud accusation with no records? My point was simply that the IRS gets to decide whether or not to accuse someone of fraud. I understand that they then have to prove this in court.

Read it again: “Still,* if this is a possibility,* you should keep your return until the first year that is eight years later than the year to which the return relates. For example, 2000 returns should be kept until January 1, 2008,* if substantial understatement is a potential problem.”*" You **will **know if you under-reported your Gross Income by 25%. In that case, keeping your reciepts is not so much as issue as keeping a good Tax Attorney on retainer.

So, unless you are up to no good, and know you’re up to no good- which I cheerfully admit I do not assume my fellow SDMBers of being that criminally stupid- then you only need to keep them for 3 years past the date filed or due. That would be 4/15 of the the year that is four years later than the year to which the return relates. The cite sez 5 years, and that’s fine for the actual returns, as I said.

Records don’t really help with a fraud accusation- one that is started more than 3 years past the SOL. The chance that the IRS will go for Fraud for** Deduction**s is very very small, and that chance vanishes to nothing if the 3 Year SOL has expired. The IRS goes for Fraud for non-filing, for spurious Tax protestor arguments or for Unreported Income. In none of those cases are your reciepts going to help you, nor will the IRS even ask to look at them. Once in a great while, the IRS does find huge overstatements and altered documents during a routine udit- but that audit is *always ***started **well before the 3 year SOL has run out. I didn’t think I had to add “but if you are in the middle of the huge multi-year audit, don’t throw away your reciepts just because the 3 years has run.” :rolleyes:

You might keep the actual copy of your return to show that you filed- but not "simply to be able to defend against audits". Audits are not going happen past that 3rd year.

Your defense against a fraud accusation? “They have not proved fraud beyond all reasonable doubt”, which is what *your attorney *will be saying for you. You will be keeping your mouth shut. Once they accuse you of fraud, you hire a lawyer. Again, unless they started during the 3 year SOL, they will NOT be opening a fraud “audit” in a year that is already barred by Statute for expenses. And if they do accuse you? And they have no basis? They have then “barred a Statute” which is a firing offense. And, you can sue them for damages. Not to mention the Taxpayers Bill of Rights might very well have many of them fired anyway. No sane Revenue Agent wilfully bars a Statute, and even if they were insane, their boss will get fired too, that that means several crazy folk- all of whom picked you from the giant fish-barrel. :dubious: Right. : :rolleyes:

Of course, “they” can accuse you wildly of anything. I mean, can you prove you didn’t commit that murder last year, the one down the street from your house? :eek: But “they” don’t go around doing that. Having the IRS start a fraud audit on you out of the blue (after the 3 year SOL) is about as likely as being struck by a meteor. You do have that special meteor-proof armor plating in your roof don’t you? Dudes that really think that the IRS wil accuse them of tax fraud out of the blue from 7 years ago all wear tinfoil hats- and tinfoil underwear too.