Academic journal article Journal of Accountancy

Knock, Knock: It's the IRS

Academic journal article Journal of Accountancy

Knock, Knock: It's the IRS

Article excerpt

Are you ready to produce the records and documents you need under the law?

Adapted from the A/CPA's Accountant's Business Manual

Record retention is a must, whether for personal, business or tax reasons.

However, record retention is necessary only to the extent it serves a useful purpose or satisfies legal requirements.

For example, generally the IRS must assess additional tax within three years after the latter of filing of a return or its due date. The period is six years if the taxpayer omits items of gross income that, in total, exceeds 25 percent of gross income reported on the return.

If a fraudulent return is filed, or if no return is filed, there is no limit to the period the tax can be assessed. In practice, however, most individuals and businesses retain records based on available space.

Many accounting firms maintain permanent files for their clients. In a permanent file, such legal documents as wills, leases, employment agreements, and debt instruments are kept. In addition, other pertinent tax documents such as Subchapter S Election Approval or Keogh plans may be kept in this file.

Non-tax records that establish the due professional care with which an accountant has performed an accounting or auditing service should be retained as long as a legal action could be filed by an injured party. …

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