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August 28, 2012

Federal Tax Record Keeping & Documentation for IRS Audits

Hectic economic times can present challenges for taxpayers under an IRS audit or examination. As tax attorneys in Columbus, Ohio, we assist many individuals and businesses that become subject to an IRS audit or examination. Keeping adequate records is one of the most important things you can do to avoid a potential IRS audit or examination, and ensure that an IRS audit or examination does not result in an assessment of additional tax, penalties, and interest. The tax lawyers at Nardone Law Group assist Ohio taxpayers on understanding their IRS’ record keeping requirements and provide some helpful tips on what types of documents to keep so that you may, or at least, successfully defend an IRS audit or examination.

IRS Tax Record Keeping Requirements

In slow economic times, it is certainly tempting to find and take as many tax credits or deductions as possible when filing your federal tax return. But, it is important to note that some of the most potentially helpful deductions also require some of the most specific proof. Internal Revenue Code Section 274(d) requires a taxpayer to substantiate expense credits and deductions for travel, entertainment, amusement, recreation, business gifts, automobiles, home computers, or cellular telephones. For travel, entertainment, amusement, recreation, and business gift credits and deductions, a taxpayer must provide adequate supporting records as to the following aspects of those credits and deductions:

1) the amount;

2) the time and place of travel, entertainment, amusement, recreation, or use of the facility or property, or the date and description of the gift;

3) the business purpose of the item; and

4) the business relationship between the persons entertained, using the facility, or receiving the gift.

A taxpayer must substantiate credits and deductions for automobiles/other vehicles, computers and peripherals, and cellular phones by showing:

1) the amount, including purchase price, lease payments, and maintenance expenses for each expenditure;

2) the amount of the business or other profit-focused use of the property for the taxable year and the amount of total use for the same period (e.g., for automobiles, the number of miles traveled);

3) the date of each expenditure and use; and

4) the business purpose of each expenditure and use.

What Tax Records Should I Keep?

The IRS recently issued IRS Summertime Tax Tip 2012-16 on the topic of record keeping for tax purposes, which we summarized below.


Generally, you should keep documents that confirm items on your tax return for at least three years after you file that tax return. The type of records you should keep include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks or other proof of payment and any other records to support deductions or credits claimed. You should generally keep records related to property at least three years after selling or otherwise transferring the property. You should note, and keep records for, the following types of transactions: a home improvement or purchase, transfer of stocks and other investments, Individual Retirement Account transactions, and property rental.

Small Businesses

Generally, you should keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Additionally, you should keep documents recording gross receipts, as well as evidence of purchases, expenses, and assets. As an example, you should keep Z-tapes or cash register tapes, bank deposit slips, credit card charges and sales slips, receipt logs, purchase and sales invoices, canceled checks, account statements, Forms 1099-MISC, real estate closing statements, and petty cash slips. It is also a good practice to keep electronic records, such as: e-mails, faxes, voicemails, databases, and other electronically saved files. Nardone Law Group represents individuals and businesses in federal tax issues, including those who have become subject to an IRS tax audit or examination. If you are facing an IRS tax audit or examination or are interested in learning how to keep adequate records to substantiate items contained in your federal tax return, you should contact an experienced tax attorney today. Nardone Law Group’s tax lawyers and professionals have vast experience representing clients in IRS tax audits and examinations. Our experienced tax lawyers will thoroughly review your case to determine what options and alternatives are available, including the Offer in Compromise, or the Fresh Start program. Contact us today for a consultation to discuss your case.

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August 28, 2012


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