Preparer Tax Return Retention Requirements | Helpful Info You Need To Know

Preparer Tax Return Retention – Free Backup Solution For Taxpayers

Tax return document retention is a topic discussed amongst tax professionals on occasion. However, while there has been increased discussion and analysis in the last few years, a tax return document retention policy does not garner much attention or awareness from taxpayers. The discussion and focus on this article is related to tax files and records and what the policy of Tax Samaritan’ is in relation to legal requirements set forth by Federal Regulations. In essence, paid preparers of tax returns are required to retain certain information regarding those returns for a specified period of time. While this is a regulated requirement, I prefer to think of it as a free backup solution for taxpayers where they can have access to their tax return documents in case their original documents are lost or misplaced. But more than that, be able to ask questions and seek out answers related to those returns, if needed, in future years.

In the past, paper files were the primary means of documenting our work. Now electronic documents in the form of files, work papers, emails and final work products are maintained in digital format. Today, we have a combination of paper and electronic documents. All documents whether electronic or paper is kept safe and secured.

For federal income tax purposes, books and records are required to be retained so long as the contents may become material in the administration of the tax laws, although “material” is not defined. For practitioners this generally means information relied on in the preparation of the clients’ returns. The books and records must be retained, at a minimum, until the expiration of the statute of limitations, including extensions, for each tax year. In general, this is three years.

Any and all tax return records that our firm or professionals of our firm are obliged to retain have been retained so that whether they are needed to adhere to IRS regulations or to be able to answer a taxpayer inquiry are available. Tax Samaritan’s policy is go beyond IRS requirements – we retain for a period of seven years. On occasion, our firm or professionals of our firm are requested to shred or destroy tax return documents by taxpayers, unfortunately as paid preparers we are unable to do so. But you can be assured that your documents are held to the strictest confidence and security to ensure that the privacy of the records is held intact.

Code of Federal Regulations – Tax Return Record Retention Requirements

Section 6107 provides requirements for tax return preparers with respect to retaining copies of the returns or alternatively maintaining lists of returns prepared. Section 6107(b) states as follows:

(b) Copy or record to be retained. (1) A person who is a signing tax return preparer of any return or claim for refund shall—

(i)(A) Retain a completed copy of the return or claim for refund; or

(B) Retain a record, by list, card file, or otherwise of the name, taxpayer identification number, and taxable year of the taxpayer (or nontaxable entity) for whom the return or claim for refund was prepared, and the type of return or claim for refund prepared;

(ii) Retain a record, by retention of a copy of the return or claim for refund, maintenance of a list, card file, or otherwise, for each return or claim for refund presented to the taxpayer (or nontaxable entity), of the name of the individual tax return preparer required to sign the return or claim for refund pursuant to § 1.6695-1(b); and

(iii) Make the copy or record of returns and claims for refund and record of the individuals required to sign available for inspection upon request by the Commissioner.

(2) The material described in this paragraph (b) shall be retained and kept available for inspection for the 3-year period following the close of the return period during which the return or claim for refund was presented for signature to the taxpayer (or nontaxable entity). In the case of a return that becomes due (with extensions, if any) during a return period following the return period during which the return was presented for signature, the material shall be retained and kept available for inspection for the 3-year period following the close of the later return period in which the return became due. For the definition of “return period,” see section 6060(c). If the person subject to the record retention requirement of this paragraph (b) is a corporation or a partnership that is dissolved before completion of the 3-year period, then all persons who are responsible for the winding up of the affairs of the corporation or partnership under state law shall be subject, on behalf of the corporation or partnership, to these record retention requirements until completion of the 3-year period. If state law does not specify any person or persons as responsible for winding up, then, collectively, the directors or general partners shall be subject, on behalf of the corporation or partnership, to the record retention requirements of this paragraph (b). For purposes of the penalty imposed by section 6695(d), such designated persons shall be deemed to be the tax return preparer and will be jointly and severally liable for each failure.

(c) Tax return preparer. For the definition of “signing tax return preparer,” see § 301.7701-15(b)(1) of this chapter. For purposes of applying this section, a corporation, partnership or other organization that employs a signing tax return preparer to prepare for compensation (or in which a signing tax return preparer is compensated as a partner or member to prepare) a return of tax or claim for refund shall be treated as the sole signing tax return preparer.

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Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US tax preparation and representation. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.

When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts). If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).

Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.

Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.