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Satisfying The I.R.S. with Record Retention

Below is a discussion for complying with I.R.S. regulations relating to general tax records and their retention.  In addition to these general requirements, the I.R.S. has additional requirements when it comes to documentation and supporting evidence for business related expenses such as auto expenses, travel and entertainment expenses, charitable donations, etc..  Please consult directly with me on these other issues if needed. 

TAX RECORDS

Requirement To Have Them

By law you are required to keep information and records that will enable you to prepare a complete and accurate tax return.  All information and records should be retained as your primary protection against deficiency assessments and penalties assessed by the Internal Revenue Service.  You are advised that failure to keep adequate records to substantiate items on your tax return can lead to penalties assessed under IRC code section 6662.

Requirement To Keep Them

Most records must be kept for as long as their contents are material in administering federal and state tax laws.  Records that support an item of income or deduction appearing on your return must be kept until the statute of limitations for the return expires.  The Internal Revenue Service usually requires three years from the date the return was due or filed, or two years from the date the tax was paid, whichever occurs first.  Amended returns start the statue of limitations over from the date the amended return is filed.  In the special case where the taxpayer has understated gross income by more than 25%, the statute of limitations will be extended to seven years.  State requirements are similar, although Colorado law provides for a four year period rather than three.

What They Are

Adequate records consist of paid receipts, check stubs and canceled checks, bank statements, purchase or lease contracts, sales slips, escrow statements, required tax statements, business expense records and so forth.   In some cases where actual documents are not available, substitute records are often acceptable. 

Additional Requirements

In some cases, you are required to keep additional records supporting your deductions.  A prime example is supporting evidence for business related expenses for the use of an automobile or travel and entertainment in connection with one's business.   An auto expense log, and for travel expenses, a diary or travel log indicating destination, business purpose of the travel, odometer readings, and any expenses incurred while away on business is required by the I.R.S. in addition to actual receipts.  In such cases where proper records are not readily available, please consult with me. 



TIMOTHY H. SLONE

CERTIFIED PUBLIC ACCOUNTANT

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website version 3.0.1
last updated 1/22/2010
created 12/01/2006