Business News & Tips Alan S. Moore L’Observateur / July 7, 1999You’ve stored years of tax data and every year you dared yourself to throw away those old documents. But, to be on the safe side, you continue tomaintain your mountain of tax details from years gone by. Here areguidelines to help you decide which tax records to keep.

Published 12:00 am Wednesday, July 7, 1999

General Retention Periods The IRS generally has up to three years after the original due date of your return (or the date the return is filed, if later) to assess additional tax.

Thus, if you filed your 1997 individual federal income-tax return on or before the April 15, 1998 deadline, the IRS generally has until April 15, 2001 to assess a tax deficiency against you. If you file your return afterthe original due date of April 15, the start of the three-year time frame shifts to the date you filed the return.

This does not mean you should dispose of your tax records after the three- year period is up. Instead, copies of your tax return and other evidencethat you filed a tax return for each year should be retained indefinitely.

Why? Because if you fail to prove you filed a tax return for a particular year, the IRS can assess tax for that year at any time in the future.

However, from a practical standpoint, retaining the details of each tax return for six years after the return is filed should be adequate, since the IRS may extend the three-year assessment period to six years if more than 25 percent of your income in a particular tax year was omitted from your return.

Property Transactions Records of the cost of property you purchase and will likely sell in the future (including investments) should be kept for at least six years after the tax year the property is sold (not just six years after the date of purchase). The reason: These records may be needed to substantiate youradjusted tax cost basis in the property. For example, let’s say youpurchased a commercial building in 1980, made significant capital improvements in 1987, and sold the building in 1998. If your 1998 taxreturn is audited, you may have to produce records evidencing the cost of the purchase in 1980, and the amounts spent on capital improvements in 1987, to be able to substantiate the property’s adjusted tax cost basis used in calculating a gain or loss on the 1998 sale.

Lost or Destroyed Records Keep your most important tax records in a safe deposit box or other safe place. If the records are lost or destroyed, look for ways to reconstructthem as soon as possible, so that you will be prepared for any IRS questions that may come your way.

(Alan S. Moore is a financial advisor of Legg Mason Wood Walker Inc., adiversified financial services and securities brokerage firm that is a member of the New York Stock Exchange, Inc. and SIPC.)

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