Why YOU Should Care:
In order to maintain proper records for your business, you need to know how long the IRS expects you to keep each tax return and its supporting documentation.
Period of Limitations
The “period of limitations” represents two things:
- The time during which you can amend your return to claim a credit or refund, and
- The time during which the IRS can review your return to assess additional tax.
Filing early does not impact the period of limitations as early-filed returns are treated as filed on the due date.
Most taxpayers should keep records for six years. While the IRS must complete its audit of your return within three years from the date it was filed, this period extends to six years if they suspect you’ve under-reported income by 25% or more.
Claiming a Credit or Refund
The timeframe for filing a claim for a credit or refund is tighter. You have three years from the date you filed your original return or two years from when the tax was paid, whichever is later.
If you are claiming a loss from worthless securities or a bad debt deduction, the IRS has seven years to review your return and initiate an audit. Taxpayers claiming such losses should adapt their recordkeeping timeframe accordingly.
There is, understandably, no period of limitations when a crime has been committed. If you fail to file a return or file a fraudulent return, there is no limit to the period in which the IRS can seek restitution.