How Long Does the IRS Have to Assess Additional Tax?
In most cases, the IRS can audit, propose adjustments, and assess additional tax up to 3 years after the later of (a) the date a return was filed, or (b) the original due date. For example, assume your 2022 individual tax return was filed on April 11, 2023, a week before the due date of April 18, 2023. The IRS has until April 18, 2026, to assess a deficiency. For 2019 individual tax returns filed in 2020, the 3-year statute of limitations has either recently passed or will pass later this year depending on the date you filed the 2019 return.

More About the Statute of Limitation
As always, there are exceptions to the general 3-year statute of limitations described above. The statute of limitations is extended to six years if gross income is understated by 25% or more. There is no statute of limitations if a fraudulent return is filed, or if no return is filed at all. In addition, the time period to file an amended return requesting a refund is different from the amount of time the IRS has to assess tax.

What Should I Keep Indefinitely?
Keep any records related to the purchase of a home – closing statements and documentation for improvements. At some point, you may sell and need to determine basis – even if you are covered by the $500,000 home sale exclusion. We recommend keeping those at least seven years after reporting the sale. The same recommendation holds for purchases and sales of any real property, investments, and other capital assets.

We recommend keeping a copy of tax returns indefinitely but after the 6-year statute passes you can destroy most of the source documents. Also, retain W-2 copies and IRA documentation. It may be necessary to provide your historic W-2 forms to correct social security earnings records if there is ever a problem in the future.

Record Retention Schedule
Here’s a link to our record retention schedule, including guidelines for individuals and businesses: Record Retention Schedule

A Word About Document Destruction
When we mention destruction, that’s not simply throwing paperwork in the trash. Any document with confidential account numbers, social security numbers, or other PII (personal identifiable information) should be destroyed. Shredding is the best method although there is something satisfying about adding them to a fire on a cold winter day.

Please contact your Dent Moses advisor if you have questions.