Record Retention for Tax Return Preparers

by Ralph Evangelista, CPA, CGMA, Frazer, Evangelista & Company, LLC – November 19, 2018
Record Retention for Tax Return Preparers

The rules on record retention can be complex. This article addresses federal, New Jersey and New York record retention requirements and recommendations for tax preparers.

Federal

According to IRC Section 6107(b), an income tax return preparer must retain a copy of each income tax return or claim for a refund as well as the name of the individual preparer who was required to sign those returns. This requirement can be satisfied by the retention of a list or card file which contains the name, taxpayer identification number and tax year of the taxpayer for whom the return or claim for refund was prepared and indicating the type of return or claim for refund that was prepared, pursuant to IRC regulation 1.6107-1(b). 

This information must be available for inspection upon request for a three-year period. If the preparer is a corporation or a partnership which is dissolved before expiration of the three-year period, then the responsible parties are all persons under state law who are responsible for winding up the affairs of the corporation or partnership. If no person or persons are designated under state law, the regulations provide that collectively the directors of the corporation or the general partners of the partnership shall be required to retain the records for the required three-year period. If the taxpayer has obtained an extension of time for filing, the three-year retention period begins at the close of the extension period. 

If a preparer is employed and compensated by a corporation, partnership or other organization to prepare a tax return or claim for a refund or is compensated as a partner or member to prepare a return or claim for a refund, the organization is solely responsible for the recordkeeping requirement, pursuant to IRC regulation 1.6107-1(b).

New Jersey

Unlike the IRS, the state of New Jersey does not have laws or regulations regarding record retention requirements for a tax practitioner. But it is recommended that a copy of the tax return as well as supporting documentation is retained for the period of time required by New Jersey relating to tax audits. New Jersey tax law generally places a four-year statute of limitation on tax audits unless you approve in writing a consent to audit beyond this timeframe. However, gross income tax returns have a different statute of limitations which is three years from filing of a tax return, pursuant to New Jersey Statute 54:A-9-4(a), as long as the tax return does not involve an omission of income. If income has been omitted, the statute is six years from the filing of the tax return, pursuant to New Jersey Statute 54:A-9-4(d). The statute of limitations does not apply for any period during which a taxpayer failed to file a return, failed to report federal tax changes or if a false or fraudulent tax return was filed.

When the New Jersey State Board of Accountancy was contacted about record retention requirements, their response was, “your records should be retained for a reasonable period of time.”

New York State

New York State requires a preparer to keep a completed copy of the income tax return or a claim for a refund for each taxpayer, or keep a list of the name and identification number of each taxpayer for whom a return or claim for a refund was prepared. The completed copy of the return or claim for a refund, or the list, must be available for inspection by the Tax Department upon request. The information stated above must be kept for a period of three years after the due date of the return (without regard to extensions), or three years after the date the return was presented to the taxpayer for signature, whichever is later. However, a claim for a refund or the list must be kept for a period of three years from the time the claim for a refund was presented to the taxpayer for signature.


Ralph  Evangelista

Ralph Evangelista

Ralph J. Evangelista, CPA, CGMA, MS Taxation, is co-managing member of Frazer, Evangelista & Company, LLC, and an adjunct professor in the Accounting and Business Law Department at Seton Hall University. He is a member of the NJCPA Professional Conduct Committee and several NJCPA interest groups. Ralph can be reached at rje@evangelista.net.