How long do I have to keep prior income tax records?

Q: How long do I have to keep prior income tax records? --Diane, Dracut

The following answer was provided by Mark Misselbeck, CPA, Levine Katz Nannis & Solomon PC, Needham.

A:The general rule is three years from date of filing. This is the time period set by Congress in the Internal Revenue Code as a reasonable period for the government to challenge the return, in most instances. If, however, you have claimed a loss from worthless stock, the period runs to seven years. You may want to keep them for a longer period, if you have claimed deprecation on a rental property, since the depreciation can complicate your tax calculations when you sell the property. The same would hold for tax deferred transactions - a merger of two corporations where you receive stock in the survivor, since your cost of the original stock and its holding period carryover to the survivor's stock that you receive, or if you engage in a "like-kind" exchange of properties, or you receive proceeds form condemnation of property (or insurance proceeds from a casualty) and you reinvest in similar property to defer the gain that you would otherwise have had to have recognized at the time of the transaction.

In certain circumstances, the government may have a six year period within which to examine the return. This happens when there is a "substantial omission" from a return, essentially, another one third of the reported income that was reported is added to the return on examination. In this circumstance, the error is so significant that the government is being injured by the substantial omission to the point that the Congress gives the government more "breathing room" within which to correct the error.

Finally, if the government can prove that the taxpayer has perpetrated a fraud on the government with a false return, there is no limit to the number of years that they can go back on a return.

The same holds for a non- filing situation - if the return was never filed, there has been no notice to the government of what it is that they may want to look at, so the period within which you would need to prove you're right and they're wrong is always open.

The period is extended to six years