Let's now look at the exceptions to the 3-year rule.
Should the IRS audit your records and they believe you have significantly underreported your income (by 25 percent or more), or believes there may be indication of fraud, then your exposure period is extended to six years.
Click a link below to view guidlines for general best-practices and exceptions.
Create a Backup Set of Records and Store Them Electronically.
Keeping a backup set of records -- including, for example, bank statements, tax returns, insurance policies, etc. -- is easier than ever now that many financial institutions provide statements and documents electronically, and much financial information is available on the Internet.
Even if the original records are provided only on paper, they can be scanned and converted to a digital format. Once the documents are in electronic form, taxpayers can download them to a backup storage device, such as an external hard drive, or burn them onto a CD or DVD (don't forget to label it).
You might also consider online backup, which is the only way to ensure that data is fully protected. With online backup, files are stored in another region of the country, so if a natural disaster occurs, documents remain safe.
Disposing of Records
Be sure to carefully dispose of your records. We suggest shredding, since these documents contain lots of personal data that can lead to identity theft.
