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Discussion:Save client records -how long?

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Discussion Forum Index --> Business Growth Community --> Save client records -how long?


Bruschi (talk|edits) said:

15 January 2007
How long do tax preparers have to save copies of tax returns prepared, electronic or paper?

DZCPA (talk|edits) said:

15 January 2007
I do not think the tax preparer MUST ever save them. You must give taxpayer a copy. You need to save E File authorization form signed by taxpayer for 3 years. Its just good business sense to save returns for at least 3 years. In CA you must be able to produce a list of the returns you prepared.

San Diego (talk|edits) said:

15 January 2007
I think this may vary from state to state...

Will (talk|edits) said:

15 January 2007
Oregon practitioners must save return copies and workpapers for at least four years. I wouldn't be suprised if OR and CA weren't the only two states to even address the issue.


William Price, EA | Portland, OR - Talk to me

SHENIER (talk|edits) said:

16 January 2007
We retain the tax returns for 3 years and include this statement in the client engagement letter. The engagement letter also states that the client is expected to retain all original backup/source documents for the tax return we prepared as well as the return.

Michaelstar (talk|edits) said:

16 January 2007
I have a client records retention schedule that is included in the AICPA Management of an Accounting Practice Handbook and it suggests that for present clients - the last 3 years tax returns are to be retained in the office and all other returns are kept in storage for all returns prepared. If you consider that to long, you might want to keep at a minimum the last 7 years. I myself would never think about destroying documents until after 10 years for former clients and would wait at a minimum 15 years for present clients.


Also, when destroying any client records in your possession - if you do not have a shreading machine that will handle large quanities of paper without burning up there are businesses that will come to your office and professionally destroy all documents for very little cost.

Lizzit (talk|edits) said:

16 January 2007
If you've got any sort of license at all, y'all are covered under the Circular 230 rules. That includes CPAs, DZCPA. It's three years, in either electronic or paper format. Some states may require more.

I save pretty much forever, just to be safe.

Uncle Sam (talk|edits) said:

16 January 2007
Lizzit is absolutely right - Circular 230 dictates the minimum period.

Waynecpa (talk|edits) said:

16 January 2007
I keep copies of the returns for 7 years (starting to do everything electronic so there won't be issues with space).

I did just get a call from a former client of the CPA I purchased the business from stating that the State of California was asking questions about his 1993 tax return and he wondered if we had a copy.

PJLCPA (talk|edits) said:

16 January 2007
I know that the rule says three years, but, be careful about date return was actually filed, and any basis information. We keep old clients 5 years, then send notice that they should pick up by a certain date or they will be destroyed. Current clients are all saved. We do not keep any original information, all original documents are returned to client when they pick up their returns.(except efile authorization). We scan clients documents, returns, etc. so storage is not a big problem.

Lhhesscpa (talk|edits) said:

16 January 2007
Code Sec 6107(b) says that "Any person who is an income tax return preparer with respect to a return or claim for refund shall, for the period ending 3 years after the close of the return period." Circular 230 has no such requirement. -- Larry Hess, CPA, Albuquerque, NM - Talk to me

Death&Taxes (talk|edits) said:

16 January 2007
I was beginning to think I was the crazy one when I could not find the three year rule in 230. Thank you, Larry, for restoring my sanity. I would only add this: If you practice in a state not based on Federal tax law like NJ, you almost need to compile an 8606 type format giving both deductible and non-deductible IRAs. Ditto Keogh, SEP, Simple contributions for they are not deductible on the NJ-1040, yet your basis will be taxed if you don't know it.

DZCPA (talk|edits) said:

16 January 2007
Where is the rule????

Return copy appear not to be required according to sec 6107(B). A listing of who was prepared is enough. Could not find it in rule 230.

Larry, You left off the rest of the sentence.

1) retain a completed copy of such return or claim,............................................................... ..or retain, on a list, the name and taxpayer identification number of the taxpayer for whom such return or claim was prepared

Will (talk|edits) said:

16 January 2007
It is not addressed in the Circular. DZ or SD: How long does CA require you to keep a list of returns? Just three years?

DZCPA (talk|edits) said:

16 January 2007
I think 3 years. We do keep copies for over 3 years. I just do not think there is a rule that you MUST do it without any other options.

Natalie (talk|edits) said:

January 16, 2007
And as far as document destruction goes, watch your state rules. Hawaii just passed a law that states any personal information (SS#s qualify) needs to be shredded if in paper or disc form and wiped clean if on a computer.

Smokeytax (talk|edits) said:

16 January 2007
I have a written record retention policy for each type of document I have in my office. For active clients (those who I still work on), I keep copies of tax returns indefinitely. For inactive clients, I keep copies of the tax returns for 7 years.

This is for my convenience only - in my engagement letter I tell clients that they are responsible for retaining all of their records, rather than me.

Each year I have a shredding truck come to my office & destroy documents according to my policy, keeping a record of what documents were destroyed and when.

This will all get easier as I phase in my transition to paperless files.

This may seem over the top, but I think it's the way of the future.

JR1 (talk|edits) said:

January 16, 2007
Technically, DZ is correct, you merely are required to keep a list. Practically, we keep three years for ex-clients, a lot more than that for current. Depends on file cab space!

Death&Taxes (talk|edits) said:

16 January 2007
I think the big city refund shops use the list method! As if their 'clients' are still living there.

Sandysea (talk|edits) said:

16 January 2007
I want to dump ALL of mine...but I keep the records at this point as long as I have been in business for myself...so far 3 years...hopefully will continue to count!!!

Deback (talk|edits) said:

January 16, 2007
Current clients' file folders stay in the file cabinets. Every year, in early January or before, I'll pull out the prior clients' folders and store them in two boxes on one side of my laundry room. Every year, I'll shred the folders in the oldest two boxes, to free up room for the current prior clients. I keep all acct records for my monthly accounting clients for at least seven years. For current tax clients, every few years, I'll shred a few older year copies, when their folders are getting too thick. And I always worry about my son having to deal with all of these client files, if I should die before I retire and have already discarded everything.

Death&Taxes (talk|edits) said:

16 January 2007
When I moved from upstate NY in 2003, I had storage boxes with returns and papers back to 1986 for some clients. I sent out a mailing three months prior to moving telling clients all but the last six years would be shredded and offered them for a small charge. Had about 40 responses. I had two people running a shredder that takes 20 sheets a time and then I had to take the bags to the dump. I lost count; I thought we even burned out the shredder motor, a German machine that ran about $500. This year we shredded 1996-97-98 and this time we got smart and called a shredding company. About 30-40 minutes is what it took. Neat truck too. It cost $128. And they did not care about staples etc.

Sandysea (talk|edits) said:

16 January 2007
WOW Deb...I could not work out of my home...not disciplined enough for me...I would rather watch "Court TV"...hehe

Deback (talk|edits) said:

January 16, 2007
Sometimes, it can be difficult, especially in the off-season, when I don't want to answer the phone for nine months and want nothing to do with tax returns until January, which I dread every year. I didn't used to feel this way, though, years ago. My current interest (since 08/04) is watching movies I've recorded on Tivo and copied to DVDs (some days, five movies a day). I'm missing that right now, while I'm stuck down at the desk in my office for the next three months. I can't believe how many good movies I've missed by being addicted to the computer from 1989 through mid-2004.

Kevinh5 (talk|edits) said:

17 January 2007
There is no 3 year rule in Circular 230 relating to client records. There is only a rule relating to us retaining records showing whose tax returns we completed and the type of return (1040, 1041, 990, 1120, etc), and the tax ID number of the taxpayer, AND the holding period starts July 1st. This can be accomplished by a simple list, a copy of the front page of the return, electronically (pdf etc files), or a complete copy of the return.

Death&Taxes (talk|edits) said:

17 January 2007
Deb: Our dvd/vcr collection is more than 500....people ask why not netflix and I tell them because we don't want to give them back.... Today Pam watched three; I only got to see the last one. If I had to keep more than 3 years in my files, we'd have no room for these movies.

Michaelstar (talk|edits) said:

17 January 2007
What I would like to find is a cost effective method of storing these documents on DVD's. I have probably 100+ bankers boxes of files (yes in my house and garage) and would like to cut it down a little. Only 3 years of back files is not in my make up so that will not cut it nbo matter what the "rules" are. Maybe should start a post on that subject.

Deback (talk|edits) said:

January 17, 2007
Now that you mention it, on 12/30/06, I had watched 936 movies since 08/01/04 (very few of these were during the tax seasons), plus 78 that I started to watch and rewrote over the dvds, and 611 movies on dvds still to watch. Since 12/30, I've copied at least five movies from Tivo onto dvds every day, while Tivo records usually more than five movies per day, but I've gotten behind on adding more movies in Tivo lately. In the last nine or ten days, I've only watched two or three movies. Each one has taken about three days to watch. Guess what I was doing to pass the time during those days? I've never considered Netflix, since I paid for a lifetime membership for Tivo 2 1/2 years ago, have all the cable movie channels, and have upgraded the hard drive in the Tivo unit twice (the last time I added two large drives). Sorry for my long messages...where's the chat forum? or a movies forum? :)

Tdoyle (talk|edits) said:

January 17, 2007
I can add a "chat" forum if you'd like...


- Tim Doyle, TaxAlmanac Moderator - Talk to me 21:54, 16 January 2007 (CST)

Deback (talk|edits) said:

January 17, 2007
Michael - You could store the files on CD-R discs after scanning all the documents. Not sure if you can use DVDs, because I haven't researched that. I have 21 file drawers full of current clients' file folders, but there's no way I would take the time to scan everything. I agree with keeping files for longer than three years. There have been many times I had to look back at files much further back than three years. I did that with my first return this year to find a full birthdate for the client's first child several years ago.

Deback (talk|edits) said:

January 17, 2007
I swear, Tim, you must be at your computer 24 hours a day!  :)

It would be nice to have an informal chat forum, especially when we are idle and there are few questions to be answered. But see if anyone else favors this idea. I don't want to be chatting with myself.

Tdoyle (talk|edits) said:

January 17, 2007
Well, I was up very early this morning (before 5am - couldn't sleep), and yes, I am here now at 10pm. I find it easier to check in frequently throughout the day rather than keep a strict 9-5 schedule. So although you'll find me here early and late, I am not here all of that time. I take breaks and go play with my puppy, do the dishes, etc.


- Tim Doyle, TaxAlmanac Moderator - Talk to me 22:05, 16 January 2007 (CST)

Bottom Line (talk|edits) said:

18 January 2007
Great minds think alike. I've been thinking about a chat forum too. Seems like we frequently regress.

Tdoyle (talk|edits) said:

January 18, 2007
I've added a General Chat area to the Discussion Forum Index.


- Tim Doyle, TaxAlmanac Moderator - Talk to me 21:19, 17 January 2007 (CST)

Bottom Line (talk|edits) said:

18 January 2007
Thanks Tim!

Davidrayjr (talk|edits) said:

3 November 2009
I found this when looking into this issue myself and thought I would bring it back up. Has anyone done anything with old paper files specifically? I'm trying to get a best practice of what should be done as we have old paper files and in the past couple years, haven't really added to them at all.

Curious what some have done in an effort to "clean" up files and file cabinets for those moving to a more paperless (or what I say we don't save the paper anymore) system.

I thought about maybe scanning the last 3 years and anything else that looks important and maybe boxing up the rest.

I may default to just leaving the files as is and not adding anything to it and one day, taking it all and storing it just in case.

Kevinh5 (talk|edits) said:

3 November 2009
boxing up - for what? to shred? or to save? If to save, just scan and then shred.

physical storage is stupid - cyber storage is cheaper

Kevinh5 (talk|edits) said:

3 November 2009
Just signed a new lease today on a faster (32PPM?) copier/color duplex printer/fax/scanner/document storage/stapler/expresso all in one Ricoh machine. Well, the expresso app isn't really attached, but it should be.

Davidrayjr (talk|edits) said:

3 November 2009
Too much to scan, would take a lot of time and effort. I was saying box up the older stuff to store. I agree, physical now is stupid, but we got a lot of old stuff (pre 2007 from who knows when).

Kevinh5 (talk|edits) said:

3 November 2009
and you are considering saving/storing it because........?

EasternPA (talk|edits) said:

3 November 2009
For long term cyber storage, be sure to store information in standard formats, such as .pdf, .jgp,...

Application specific formats may not be readable in future versions of the application program or may even read in certain fields incorrectly.

Davidrayjr (talk|edits) said:

3 November 2009
I want to ensure we have things just in case. I know we sometimes have to refer to a file to figure things out sometimes. I just want to know what others may have done with similar situation I am in.

Kevinh5 (talk|edits) said:

3 November 2009
don't make me laugh by bringing up the 'Why did the accountant cross the road?' joke again.




(Because he looked in the file and that's what he did last year)

Kevinh5 (talk|edits) said:

3 November 2009
(Natalie will not think this is funny, but I did look at your profile)

NMexEA (talk|edits) said:

3 November 2009
If you are doing estate planning, the statute of limitations may not end until 3 or 4 years after death. EP records should probably be kept forever.

Kevinh5 (talk|edits) said:

3 November 2009
you mean those 33 1/3 rpm extended play albums from ELO and The Carpenters that I've got in my basement?

NMexEA (talk|edits) said:

3 November 2009
(Snerk! Snicker! Snort!)

KathiJud (talk|edits) said:

4 November 2009
Gotcha beat Kevin - we have 8 tracks, 33 1/3 albums, and 45 singles!!!

CrowJD (talk|edits) said:

4 November 2009
I don't trust this electronic storage, though I can understand why people use it. It's a lot of stuff to keep copying over every time a machine or platform changes, indefinitely for important records. Some goof or unanticipated incompatibility down the road, and everything is lost.

Natalie (talk|edits) said:

November 4, 2009
Kevin, I did laugh this time.

One of my former employers simply threw out old files (old to him was anything for former clients and most files that were older than 3 years) when the new tax season came in. Of course, if you have any PII (personally identifiable information), you will probably get fined if you simply toss it.

Crow, one idea is to keep an old back up computer with the original software on it.

Mider (talk|edits) said:

28 October 2010
We have been going to a paperless office but had a question regarding keeping some of the original hard copies compared to electronic. Per Rev Procedure 97-22, Section 4, a system must have reasonable controls to prevent and detect the unauthorized creation of, addition to, alteration of, deleteion of stored books and records. We are now just using Adobe PDF with no encryption or passwords to scan and store on our server tax returns, workpapers and such, however, with the new softwares available, I can go to any of the records and alter them a hundred different ways. The records I am talking about are POA's, E-file Authorizations, paper filed returns and such. I have actual had to produce recently an original document for a client who is or was being audited, agent said that a copy could be altered.

Do you think the regular scan feature on Adobe is okay or should we be using a document management system? We have looked at other industries and the question is left open with no definite answer. Btw, after the original scan, all of the documents are to be destroyed.

Thanks

Szptax (talk|edits) said:

28 October 2010
I think that in PA its 10 years. I cannot recall exactly where I saw this but I think it was in a newsletter from the PA State Board. I have looked on their website since without finding it. This was many, many years ago! I was surprised by the length of time because it was significantly longer than I feel is necessary to keep business and personal records.

I use the scan feature of Adobe & Cute pdf depending on what works. I do a full back-up each year and back-up an external site daily and to a portable drive every week or 2. I am sure that the pdf's could be changed, but not by me I'm not even sure how, but is lack of knowledge a security measure? I do keep the paper copies of anything a client signs and my checklists even though they are also scanned. My files have shrunk to about 20-25 pages per file. everything else is in pdf, QB or a spreadsheet. I do not carry the QB from year to year as a file. A copy of each year is in the file folder for that year.

Mider (talk|edits) said:

28 October 2010
There was or is a feature that allowed you to put a stampmark on a PDF, but I don't think that is a standard feature. It's easy with Adobe to go in an change anything on the PDF if you have OCR capabilities, which is now almost common place.

I guess what I'm saying is should we keep a minimum of original documents in paper form, such as the wet signature pages.

We make sure that we have as of now, all of the signed E-File authorizations in a book which is indexed, just in case.

Mider (talk|edits) said:

28 October 2010
I talked to one of the partners here about it and he is worried due to the foreclosure problems and lawyers now trying to get foreclosures disallowed due to the banks not keeping wet copies of where the people have signed the loan documents.

Szptax (talk|edits) said:

28 October 2010
or maybe its because people lost everything they owned when their non foreclosure house was emptied in error and the banks don't have the correct paperwork....

Natalie (talk|edits) said:

October 28, 2010
That's an interesting question, Mider, because these days, many original documents are only in electronic form. What is an IRS agent going to say then? I think this is going to be an area that will develop as cases go to court.

Mider (talk|edits) said:

28 October 2010
I just proved a while ago to my boss, I can go into Adobe and change the date and time stamps on every page of a return and other pages. Timely filed returns? Of course see its right at the top of the page, see we even faxed it on so and so day.

Is there a program that would meet the requirements now days of 97-22 about not being unalterable? We can put passwords on the scans and do the documentation to say "dont touch" but honestly.

Szptax (talk|edits) said:

28 October 2010
and how did you do that? - inquiring minds want to know...

Natalie (talk|edits) said:

October 28, 2010
But anyone who knows how to get at the metadata would know that changes were made.

My understanding is there are ways to make documents secure. Mider, have you ever tried to alter W2s that are saved from the SSA.org website?

Mider (talk|edits) said:

29 October 2010
No, but you could download multiples and change them to meet what you want, or it appears so. I guess what I was trying to get at was, would a normal PDF without encryption meet the requirements of 97-22. Its not that there is a possiblity of being changed but that it could be done.

I had heard there were some challenges to 97-22 due to new technologies, the original being written 13 years ago, tech and software have greatly improved, but I was unable to find anything that has arisen.

Natalie (talk|edits) said:

October 29, 2010
Its not that there is a possiblity of being changed but that it could be done. I'm sorry, I don't understand this comment.

I've tried changing my own W2s that I saved from the ssa.org website, and I couldn't do it. I don't know whether unencrypted files would meet the requirements.

Mider (talk|edits) said:

29 October 2010
That is what I get for not proofing again before hitting send. I am not sure about the ssa.org W-2's, there is probably encryption to make sure that an OCR can not read the characters.

I am just worried about deestroying the only wet signature copies of documents that might have to be used for an audit or legal representation. We did have a client a few years ago that disputed the return that we were using for his defense in an audit until we showed him the signature page. There has been discussions here about creating a PDF and than destroying the documents as soon as the return is finalized and sent to the client along with their original documents.

Szptax mentions about doing an electronic record as well as hard copy of some of the more important signed documents for at least a while.

We have binders here that we have been putting the signed documents into such as the 2848's and the 8879 and than putting them in a safe place and than storing indefinitely.

I have no problem with workpapers and such getting scanned and than destroyed, just the signed documents.

Natalie (talk|edits) said:

October 29, 2010
Have you asked an attorney your question?

Mider (talk|edits) said:

1 November 2010
I have not yet asked an attorney like you suggest. We have one in house but he is very old fashion and not up to date on the electronic aspects.

DZCPA (talk|edits) said:

1 November 2010
Milder, Scan all including signature pages. Saves you all that sorting and time. Do you get all the signatures notorized? I believe a copy will be fine during an audit. I do show copies of receipts for deductions and the IRS seems to do fine with thoses.

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