01 Aug I’m confused about how long to keep financial records

Q. In a story recently, you said it’s important to keep financial records for seven years but the IRS can only audit three years back. Which is it? Three or seven?
— Confused

A. It’s not as simple as just giving you a number. It depends on the circumstances.

How far back the IRS can go is referred to as the statute of limitations.

In general, the statute of limitations is three years from the due date of the return, including extensions, said Cynthia Fusillo, a certified public accountant with Lassus Wherley, a subsidiary of Peapack-Gladstone Bank, in New Providence.

For example, your 2018 return was due April 15, 2019. Assuming it was not extended, then the IRS may come back up until April 15, 2022 to propose changes, Fusillo said.

However, as with most things tax and IRS related, it’s not that simple.

“For omissions of income that are in excess of 25 percent of the gross income shown on your filed return, the statute of limitations is six years,” she said. “So, for the 2018 return, assuming you neglected to report income that exceeded 25 percent of the income you did report, the IRS may propose changes up until April 15, 2025.”

Finally, there is no statute for returns that are fraudulently filed or not filed at all. In these cases, the IRS may come to you for an indefinite period of time, Fusillo said.

“The reason we sometimes read what appears to be conflicting information regarding how long to save records is directly related to these varying statutes of limitations discussed above,” she said.

One side note: You should keep records relating to a home purchase indefinitely, she said.

“Once the home is sold, you’ll no doubt need these preserved records to establish cost basis, improvements made, etc.,” she said. “Once the sale of said home occurs and is reported on your tax return, then the various statutes discussed above would continue to apply.”

Email your questions to .

This story was originally published on Aug. 1, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.