Never throw away your tax information
It's a common practice to recommend that taxpayers keep their tax filing information for three or seven years. A taxpayer has up to three years after the due date of a tax return to file an amended return if new information or corrections come about. The IRS also has three years after the due date of the tax return to notify you of a correction to your tax return.
The seven year rule of thumb comes into play because of the tax laws related to cases of fraud. If the IRS believes you've committed tax fraud, they have seven years after the due date of the tax return to go after you.
Because of these two situations, taxpayers mistakenly think it's only necessary to keep their tax documentation for three or seven years. But there's a reason to keep your tax documents forever. The three and seven year statute of limitations only start running if you actually file a tax return. If you file nothing for a year, the IRS can go after you for the taxes forever.
You're thinking this doesn't apply to you, since you've filed all your tax returns. But what if they IRS has no record of you filing a return from 17 years ago? Under the tax laws, they can still go after you. It's your burden to prove that you in fact filed, and you couldn't prove that unless you still had your tax documentation. This doesn't happen often, but the IRS does lose tax returns and a taxpayer can fall through the cracks for years. It's not hard to keep your tax papers stored somewhere, so it's wise to do it, even if there's only the slightest chance that the IRS might come after you.
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.