Steven L. Jager, C.P.A.
An
Accountancy Corporation
MEMORANDUM
TO:
All Tax Clients
FROM:
Steven L. Jager, CPA
DATE:
November, 1995 and Subsequent
SUBJECT:
Maintenance of Adequate Tax Records
What
are good records?
For how long must these records be kept?
Should your tax return ever be challenged, your primary
protection against deficiency assessments and penalties (which are not tax
deductible) are good underlying records, which will demonstrate that an accurate
and complete tax return was filed.
The
responsibility to maintain these records is yours. 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 a
return must be kept until the statute of limitations for the return expires. The
IRS 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. In the special
case where the taxpayer has understated his gross income by more than 25%, the
statute of limitations is extended to six years. The California requirements are
similar, although State Law provides for a four year period rather that three
years.
Adequate
records could consist of paid receipts, cancelled checks, sales slips, escrow
statements, etc…In cases where original documents are not available,
substitute records may be acceptable. One common example is the supporting
evidence for business related travel and entertainment expenses. Because of the
inherent difficulty in substantiating these expenditures, the government will
usually accept a properly kept (i.e., contemporaneous) diary or travel log
indicating destination, odometer readings and expenses incurred and paid.
If
you have any questions about these or other issues effecting your tax returns, I
encourage you to discuss them with me.