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Considerations when defining your Retention Schedules

All the records should be inventoried according to a Records Retention Schedule and their operational, legal, fiscal, and historical values. However, record retention is necessary for the length it serves a useful purpose or satisfies legal requirements. This document shows some general suggestions and guidelines on items to be included in the policy and time periods to be used.

This information is offered as a rough guide to record retention, and in no way should it be considered as an all-inclusive list. Be sure to check with local and state authorities for specific record retention requirements and use legal counsel and an accountant's advice before putting a record-retention schedule into effect.

Retention periods are conservatively long, and some of them are for legal reasons, while others are based on practical considerations. You may want to keep some records longer than the table suggests.

For example, generally the IRS has three years from the date of when the income tax return is filed to question or audit it, after the due date on a return. If the IRS can prove the taxpayer omitted items that exceed 25% of the gross income reported on the return, the time period doubles to six years. Therefore, the seven-year period is recommended, both for entity as well as individual. But, if a fraudulent return is filed or if no return is filed, there is no limit to the period the tax can be assessed.

Tax returns and governmental reports affecting tax liability should be kept permanently. However, most backup records, such as receipts, documenting income deductions need to be kept for only seven years.

Documentation is the best protection in the case of a dispute or question by the IRS or any other government agency. That one piece of paper needed to answer a question about taxes, or to comply with the law, is indispensable, and often hard to identify in advance.

Particular importance is the retention of insurance policies and related documents. From time to time, lawsuits are filed which reach back many years. Therefore, it is important to determine the policy in effect at the time that a claim arose. Should those policies be missing, they can often be recreated by contacting your broker or insurance company to establish coverage.

Some of the reasons to keep files and records include potential relevance in future litigation. It goes without saying that should there be threatened litigation or an investigation on a certain subject matter; particular care should be given that no file or document relating to that matter is destroyed.

Example of a Retention Schedule

Document Type Minimum Retention Periods
Articles of Incorporation, amendments, bylaws permanently
Contracts and leases in effect permanently
Property records permanently
Housing allowance forms 7 years
Certificate of incorporation and corporate records to the state permanently
Tax returns permanently
Audit reports of CPAs and financial statements permanently
Invoices from vendors 7 years
W-2 or 1099 forms 7 years
Bank statements and reconciliations 7 years
Canceled checks for standard transactions 7 years
Work sheets and related backup documents for tax returns 7 years
Minutes permanently
Annual corporate reports permanently
Business correspondence 3 years
Insurance policies(including expired policies) permanently
Insurance letters/correspondence permanently
Employment applications (for current employees) permanently
Employee personnel records (after termination) 3 years



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