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penalty for any return period of $25,000 Records to consider retaining ■ Client-provided original records
(Sec. 6695(d)). Most of the records that a tax practitio- should be returned to the client and
Several other Code sections and/or ner retains will generally not fall into a not retained; and
Treasury regulations require specific mandatory retention category. Instead, ■ Draft or nonfinal versions of
record retention. For instance, if a tax they will be records that are prudent documents generally should not be
preparer prepares a return that includes to keep, based on the tax practitioner’s retained unless they were provided to
the head-of-household filing status, the professional judgment. Considerations the client.
earned income tax credit (EITC), the in deciding which records to keep In addition, careful review should be
child tax credit, the additional child tax should include whether the records may undertaken regarding email correspon-
credit, the credit for other dependents, assist the tax practitioner in providing dence. If an email includes documenta-
or the American opportunity tax credit, continuing services to clients, as well tion of services provided, whether it is
Form 8867, Paid Preparer’s Due Diligence as whether records may assist in any tax advice or evidence that deliverables
Checklist, is required. potential future defense. The types of were provided in a timely manner to a
Specific record-retention require- records that it would generally be con- client, the email should be stored with
ments encompassing the five types of sidered a best practice to retain include: the other engagement records. Just as
records to be maintained and the length ■ Deliverables provided to a client importantly, once it is stored with the
of time those records must be kept (e.g., tax returns, written tax advice); other engagement records, it should
(generally, three years) are detailed in ■ Substantive communications with be deleted from email so it is correctly
Regs. Sec. 1.6695-2(b)(4)(ii). Additional the client; retained for the same period as other
explanatory information, interview tips, ■ Workpapers with calculations that related records.
and best practices are available in IRS support the deliverables; The AICPA provides a helpful
Publication 4687, Paid Preparer Due ■ Workpapers with calculations that resource to members titled Document
Diligence, and the Tax Preparer Toolkit could affect future years, such as loss Retention FAQs for Tax Practitioners,
on EITC Central. It is critical for tax and credit carryforward calculations; which addresses some basic ques-
practitioners to be aware that the defini- ■ Research that supports the tions about both firm business records
tion and conclusion of the three-year conclusions reached within the and work product and documenta-
retention period under this section is deliverables; tion records.
different from the three-year retention ■ Executed engagement contracts that
period under Sec. 6107(b). Another describe the scope of services to be Record-retention period
example of varying time requirements provided to the client; Once the tax practitioner has determined
is Sec. 6112, which mandates a seven- ■ Evidence that the deliverable was which records to retain, the next logical
year recordkeeping requirement for the provided to the client; and question is how long the records should
maintenance list that material advisers ■ Records required to be kept per the be retained. While there is a strong pro-
of reportable transactions must maintain. IRS, as described above. fessional rationale for keeping records,
When the tax practitioner is also an In evaluating record retention, the records should not be maintained
electronic return originator (ERO), there the practitioner should also consider indefinitely. Several costs are involved in
are additional record-retention require- professional standards. As an example, maintaining the records, including those
ments. For instance, an ERO must keep while the AICPA Statement on Stan- for storage and for ensuring data security.
the signed copy of Forms 8453, U.S. dards for Tax Services (SSTS) No. 7, As discussed earlier, several Code
Individual Income Tax Transmittal for an Form and Content of Advice to Taxpayers, sections require a tax preparer to retain
IRS e-file Return; 8879, IRS e-file Signa- does not include a discussion on record the records for at least three years. This
ture Authorization; and 8878, IRS e-file retention, the FAQs to SSTS No. 7 mirrors the standard statute of limitation
Signature Authorization for Form 4868 do state: “Where the taxpayer only for a taxpayer in Sec. 6501(a), which runs
or Form 2350, for three years as well as requests oral advice, it is recommended for three years after the filing date or the
other items such as the acknowledgment that the member contemporaneously return due date (including extensions),
file for IRS-accepted returns. For ad- document the advice in written form in whichever is later. However, in several cir-
ditional details, practitioners should refer the taxpayer’s file.” cumstances, a longer statute of limitation
to IRS Publication 1345, Authorized IRS Just as important as considering may apply to a taxpayer.
e-file Providers of Individual Income Tax which records should be retained is For example, under Sec. 6501(e)(1)(A)
Returns. EROs will also want to consider the consideration of which documents (ii), the statute of limitation is doubled
any applicable state retention rules. should not be retained: to six years if more than $5,000 of

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