Tax returns and related documents for a deceased individual should generally be retained for a minimum of 3 to 7 years after filing the final tax return, depending on the circumstances. However, certain situations may require keeping records indefinitely.
General Retention Guidelines
1. Standard Retention Period: 3 Years
- The IRS typically has three years from the date a tax return is filed to audit the return or assess additional taxes.
- Therefore, you should keep the deceased’s tax returns and supporting documents for at least 3 years after the filing date of the final return.
Example: - If the final return was filed on April 15, 2024, retain records until April 15, 2027.
Authoritative Source: - IRS Publication 17
- “Keep records for 3 years if situations (2), (3), and (4) below do not apply.”
2. Extended Retention: 6 Years
- If the deceased individual underreported income by more than 25% of the gross income stated on the return, the IRS has up to 6 years to audit the return.
Example: - If substantial income was omitted, keep records for 6 years from the filing date.
Authoritative Source: - IRS Publication 17
- “Keep records for 6 years if you do not report income that you should report and it is more than 25% of the gross income shown on your return.”
3. Retain Indefinitely for Fraud or Non-Filing
- If fraud is suspected or no tax return was filed, the IRS has no time limit to assess tax or penalties. In such cases, relevant records should be kept indefinitely.
Authoritative Source: - IRS Publication 17
- “Keep records indefinitely if you do not file a return.”
Special Situations
1. Estate Tax Returns (Form 706)
- If an estate tax return (Form 706) is filed, keep all related documents for at least 7 years after the estate is settled.
- This allows time for audits and resolving disputes, as estate tax issues can take longer to finalize.
Authoritative Source: - IRS Instructions for Form 706
- “The executor should keep a copy of the return and all attachments, schedules, and supporting documentation for 7 years.”
2. Basis Records for Inherited Property
- Records establishing the basis of inherited property (e.g., real estate, stocks) should be kept indefinitely or until the property is sold.
- These records are needed to calculate capital gains or losses when the asset is sold.
Example: - If a home inherited from the deceased is sold 10 years later, you’ll need records of the stepped-up basis to determine taxable gain.
Authoritative Source: - IRS Publication 551, Basis of Assets
- “Keep records relating to property until the period of limitations expires for the year in which you dispose of the property.”
3. Ongoing Trusts
- If the deceased’s estate establishes a trust, keep related records for the life of the trust plus 3 years after it terminates.
State Tax Retention Requirements
- State tax agencies may have different retention rules, often extending beyond federal requirements.
- Check the rules for the state where the deceased resided or filed returns.
Best Practices for Record Retention
- Organize Documents:
- Keep tax returns, W-2s, 1099s, and other income documentation.
- Retain records of deductible expenses, asset purchases, and basis adjustments.
- Digitize Records:
- Consider scanning and storing documents electronically for easier retrieval and longer preservation.
- Consult Professionals:
- If the estate is complex, consult a CPA, tax attorney, or estate planner for specific guidance.
- Secure Storage:
- Keep records in a secure location, such as a fireproof safe or encrypted digital storage.
Key Records to Retain
- Final federal and state tax returns
- W-2s, 1099s, and other income statements
- Receipts and documents supporting deductions and credits
- Estate tax returns (Form 706)
- Trust-related documents
- Records of property ownership and improvements
- Documentation of debts or liabilities settled by the estate
| Situation | Retention Period |
| Standard IRS audit period | 3 years after filing |
| Substantial underreporting of income | 6 years after filing |
| Fraud or failure to file | Indefinitely |
| Estate tax returns (Form 706) | 7 years after estate settlement |
| Basis records for inherited property | Indefinitely or until property sold |
| Trust-related documents | Life of trust + 3 years |
By adhering to these guidelines, you ensure compliance with IRS requirements and safeguard against potential disputes or audits. If in doubt, consult a tax professional for personalized advice.
Disclaimer: The information provided is for general informational purposes and should not be considered legal or tax advice. Tax laws are complex and subject to change. For advice specific to your situation, consult a qualified tax professional or refer to official IRS resources.