7.1 Recordkeeping
1. Sufficient Records
Keep: Sales slips, invoices, receipts, canceled checks, electronic copies (IRS compliant).
Hard copy to soft copy
Reconstruct records if originals are lost.
2. Availability of Records
Retention Periods:
3 years: General rule (statute of limitations)(Copeies of such as receipts, W-2s, 1099s, canceled checks, and credit card statements Etc) but tax return copy is permanant.
6 years: If income underreported by >25% of gross income before COGS i.e. Gross Receipts.
No limit: Fraudulent returns or unfiled returns.
7 Years: Loss on worthless securities.
Property Basis: Retain until property sold.
Employment Taxes: 4 years after tax due/paid.
3. Employment Taxes & Withholding
Records required: Employee SSN, payment dates, tax withheld, W-4s, tip statements.
4. Business Travel & Meals
Substantiation: Amount, time, place, purpose.
Document evidence under $75 is not necessary (excluding lodging)
Accountable Plan Rules:
Advance within 30 days.
Expense accounting within 60 days.
Excess reimbursement returned within 120 days.
5. Charitable Contributions
<$250: Canceled check, receipt, or statement.
≥$250: Written acknowledgment from donee.
6. (Tax Preparer) Employers (Section 6060)
(Employees) Keep preparer records (name, PTIN, ID, workplace) for 3 years.
7. Refusal to Submit Records of TaxPayer
Allowed if: Privileged or doubtful legality.
Section 7525: Confidentiality for tax advice (does not apply to climinal hearings, tax shelter, determination of an item on an original income tax return).
8. Transcripts
Types: Return, Account, Record of Account, Wage & Income, Non-filing.
Request via e-Services/TDS (secure online) in minutes.
| Transcript Type | Shows Original Return? | Shows IRS Adjustments? | Shows W-2s/1099s? | How Far Back? |
|---|---|---|---|---|
| Return Transcript | Yes (basic lines) | No | No | 3–10 years |
| Account Transcript | No | Yes (payments, penalties) | No | 10+ years |
| Record of Account | Yes + IRS changes | Yes | No | 3 years |
| Wage and Income | No | No | Yes | 10 years |
| Non-Filing Letter | N/A | N/A | N/A | Current year |
9. Documentation Retention
3 years: Most supporting docs.
6 years: If income underreported 25%.
Permanent: Actual tax returns.
10. Legal Documents
Examples: Birth certificates, divorce decrees, lawsuit settlements.
IRS may request lawsuit settlement details (checks, settlement agreements, tax returns).
11. Business Entity Documents
Articles of incorporation, bylaws, partnership agreements.
12. FOIA
IRS records subject to FOIA (exemptions apply).
Access via IRS Electronic Reading Room.
12. IP PIN
Visual Summary
┌─────────────────────────────────────────────────┐
│ **IRS IP PIN (6-digit)** │
└──────────┬──────────────────────────────────────┘
│
┌───────▼──── ──┐ ┌──────────────┐
│ **Who Needs It?** │ **How It Works** │
│ - ID theft victims │ ✔ E-file: Rejects │
│ - Opt-in taxpayers │ if missing/wrong │
└───────┬───────┘ └──────────┬───┘
│ │
┌───────▼───────┐ ┌─────────▼───┐
│ **How to Get** │ │ **Key Rules** │
│ 1. Online │ │ - Renew yearly │
│ 2. Phone │ │ - Required once │
│ 3. In-person │ │ assigned │
└─────────── ────┘ └──────────────┘
7.2 Electronic Filing
1. Who Must E-File
Preparers filing ≥10 returns/year.
Corporations: ≥$10M assets.
Partnerships: >100 partners.
1. Paper File
No E-filing Restrictions and Client Choice to file Paper is allowed
Client's choise of filing must be recorded
and Reported in form 8948 with paper Filing
2. E-File Providers
Roles:
ERO: Submits returns, retains records.
Intermediate Service Provider: Links ERO to transmitter.
Software Developer: Creates IRS-compliant software.
Transmitter: Sends data to IRS.
ACA Provider: Handles healthcare-related filings.
3. Provider Requirements ERO
Application: Suitability check, EFIN/ETIN assignment.
Security: Safeguard taxpayer data (Publication 4557).
4. Key Forms ERO
Form 8879: E-file signature authorization (retain 3 years).
Form 8453: Mailed documentation which cannot be filed online (e.g., Form 8283, 1098-C, etc., and not 8379 Injured Spouse Allocation which can be filed online).
The current and previous 2 years are allowed to be e-filed.
5. Fees & Refunds for ERO
Fees: Cannot be contingent on refund amount flat fees for transmission or return is charged.
Refunds: Direct deposit must be offered by ERO with No fees.
6. Rejection Handling by ERO
Notify the taxpayer within 24 hours. ( Need not explain the reson rather the ERO forwards the IRS Rejection Code The IRS provides a specific rejection code that explains the issue. This code is displayed in the tax software or communicated by the ERO. and IRS Acknowledgment Report The IRS sends an acknowledgment report to the ERO, which includes the rejection reason. The ERO must then inform the taxpayer.
Corrections are allowed if changes are <$50 (income) or <$14 (tax/refund) without the taxpayer's new signature.
Alternative Filing Guidance: If the return cannot be corrected electronically, the ERO must advise the taxpayer to file a paper return. The taxpayer must submit the paper return by the later of
-
-
- The original due date of the return.
- 10 calendar days after receiving the rejection notice.
- Explanation Requirement: The taxpayer include an explanation with the paper return stating why it is being filed after the deadline
-
7. Refund Anticipation Loans (RALs)
EROs may assist but cannot be related to lenders.
RAL = Loan based on refund (IRS not involved).
RAL Indicator Is included in the return data that is transmitted to the IRS
ERO/preparer and lender must be unrelated (no family/business ties).
Flat fees only (no % of refund).
8. Advertising Standards
Comply with Circular 230 (no false claims).
Allowed
Authorized IRS e-file
Factual refund speed claims
Banned:
IRS" in firm names Guaranteed refund claims Hidden partner agreements
Keep Records: Ads: 36 months Recipient lists (if mailed)
Retain ad copies for 36 months.
9. Business Taxpayers
Large Taxpayers: ≥$10M assets or >100 partners.
10. Electronic Payments (EFTPS)
Schedule payments 1 day in advance.
120 Days for Business and 1 year for individual
No single day (except few financial institutions)
Options: Direct (online/phone) or via financial institution.
11. Sanctions
Level 3: 2-year suspension/expulsion (fraud/identity theft).
12. Administrative Review
30-day window to appeal denials/sanctions.
13. EFIN Revocation
Reasons: Court injunctions, legal prohibitions.