Ask the Expert: Keeping tax returns

How long must I keep my older tax returns and backup papers? My tax accountant says "forever." I have returns dating to 1975 and no room in my closet for any more. What's your advice?

You should keep the records that support your tax returns forever if there's a chance the Internal Revenue Service will charge you with fraud, which has no statute of limitations. Otherwise, seven years is probably long enough.

Normally, the IRS has three years after you file a return to audit you -- up to six years if it suspects you underreported your income by more than 25 percent. And you have three years to amend a return in order to claim a refund; up to seven years if you're amending it to claim a loss for worthless securities.

You can shred supporting documents when the statute of limitations expires. But many financial advisers recommend keeping the tax returns themselves indefinitely because they can provide useful information. For example, a record of your past withdrawals from a nondeductible IRA could help you figure out how much of each future withdrawal is tax-free, says Bob Scharin, a New York City tax analyst.

In a pinch, you can get some old returns from the IRS, but their closet is smaller than yours; they keep returns only for six years. The agency provides old tax return transcripts and tax account transcripts free of charge. (A tax return transcript shows most line items from your tax return, plus accompanying schedules, as originally filed. A tax account transcript shows any changes made after the return was filed.) For $57 a tax year, the IRS provides actual copies of your returns for the current year and the past six years.

The bottom line Save your tax returns and supporting data for at least seven years.

Websites with more information 1.usa.gov/zmRvTj and 1.usa.gov/w4M33b