The Internal Revenue Service initially keeps any incomplete or incorrect tax paperwork. It uses the documents to perform an audit and allows the filer to fix the mistakes through additional paperwork. The amount of time the IRS keeps the tax records depends on exactly what is wrong with the forms, but after the statute of limitations has run out and additional taxes, credits or refunds cannot be assigned, it disposes of the records according to formal organizational procedures.
Amending a Return
When a return contains a mistake — such as missing a Social Security Numbers, missing signatures or failing to attach forms like W2s — a filer typically has the chance to correct the error by filing an amended return. To do this, he has to use the Amended U.S. Individual Tax Return form, better known as the 1040X. This document applies to the 1040, 1040A, 1040EZ, 1040NR and 1040NR-EZ. Although a person can grab the 1040X right off the IRS website, it can’t be filed electronically and has to be sent to the filer’s IRS service center.
If a taxpayer owes more money to the government, he usually has three years from the date he sent his original return to file this form. This rule also applies if a person is requesting a credit or refund, but in this case, he also may file for up to two years after he paid the taxes, whichever comes later. Regardless of when he sends it out, he has to include copies of any related forms that show what changed. If he was expecting to get a refund back and the amended return shows that the IRS actually owes him more, he has to wait until the first refund arrives before he can claim a second one.
The Statute of Limitations
The statute of limitations refers not only to the period of time when a person no longer can file an amended return, but also to the point at which the IRS cannot charge more taxes. Most cases use a statute of three years, but sometimes this can extend to six years; the extended deadline usually applies when someone understates his income by 25% or more. It is also an option when an audit finds problems related to previous years.
If the IRS suspects fraud or a person simply never files a return, the statute of limitations never runs out and records are kept indefinitely. In the first scenario, the documents might be useful in a legal case against the filer, so the government won’t dispose of them. Ending the statute of limitations in the second situation might prevent the IRS from getting money to which it is entitled, so the government keeps the right to audit and ask questions for that year.
Sometimes, the IRS will request an extension on the statute of limitations, because the agency occasionally becomes backlogged and has trouble getting a standard review done within the usual three-year window. It’s typically best for a taxpayer to say yes to the request, because it gives more time for a thorough examination of the records. A person who doesn’t want to extend the statute can refuse, however, or they can put some restrictions on what the IRS looks at.
Penalties, Fines and Prosecution
The IRS has the right to assign additional charges or penalties when a person files incomplete or incorrect tax paperwork, but it usually only does so when the mistake leaves the individual owing money. The agency sends the filer a request for payment, along with comments about the amendments on the return that were necessary. If someone submits incorrect tax paperwork that is fraudulent on purpose, he might be subject not only to fees and penalties, but also to criminal prosecution. The IRS keeps the records on file as a way of proving that the individual still needs to pay or should be brought to court.
When the statute of limitations has passed, the IRS doesn’t have much need for the incorrect or incomplete tax paperwork, and it starts the process to get rid of the records. Representatives look to the Archivist of the United States as the sole authority for disposal and have to follow guidelines detailed in the Records Control Schedule. Once an agent has approval to remove the records from wherever they are stored, he may erase, burn, pulp, macerate or shred the documents.