Jim provides his clients with advice to promote and protect their businesses.  

Jim provides his clients with advice to promote and protect their businesses.  

            Now that spring is here and summer is not far away, this is a good time for us to all do some “Spring house cleaning” and get rid of old files and documents.  This blog will focus on how long businesses and professionals should hold onto files before they can be purged.

            However, first let’s take a look at the IRS tax calendar:

2017 Second Quarter Tax Calendar

March 15

S corporation tax returns due (Form 1120S).

S elections must be made by this date for calendar year 2017.

Partnership tax returns due (Form 1065-B).

April 18

2016 Individual income tax returns due (Form 1040, 1040A, 1040EZ).

Contributions to an IRA for 2016 due.

First installment of 2017 estimated taxes due.

2016 tax return for C corporation due (Form 1120).

June 15

Second installment of 2017 estimated taxes due.

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Document Destruction

             I don’t think a month goes by that I don’t receive at least one phone call from a client asking how long files, tax returns, etc., should be retained.  Unfortunately, there is not an absolutely failsafe period of time one can rely upon in determining the answer to this question.  However, the answer is usually driven by the state or federal statute of limitations applying to causes of action which the individual or business could be subjected to, as well as the statute of limitations pertaining to tax matters pursuant to the Internal Revenue Code and Regulations.  My response is usually governed by the specific document involved.  Therefore, I’ll briefly outline my thoughts based upon the following categories of documents:

            Federal Income Tax Documents.  Under the Internal Revenue Code and Regulations, there is generally a three-year statute of limitations beyond which the IRS cannot assert additional tax, penalties or interest.  However, an exception to this is if there is underreporting of 25% or more, and then the statute of limitations is extended to six years.  If a tax return which was due was not filed, then there is no statute of limitations.  Accordingly, my general advice is in all but extraordinary circumstances is it is safe to dispose of federal income tax records after seven years from the date the return was due (or such later date it was actually filed).

            General Business Records.  Since there are many statutes of limitations which potentially could apply to general business records, depending upon the industry of the business and the specific transactions, I believe it is normally safe for a business to dispose of its usual and ordinary business records after seven years.  There are some rare exceptions to this general rule, but normally businesses operating in those circumstances are well aware of them through trade associations, etc.

            Medical Records.  Medical records are an exception to the general rules discussed above for the reason that if a patient is a minor, any applicable statute of limitations does not begin to run until the minor reaches the age of majority, which is 18 years old in the State of Washington.  Physicians, dentists and many other professionals who deal with minors are routinely subject to these exceptions.  Therefore, my rule of thumb when advising professionals is to wait seven years plus the number of years until the minor reaches the age of 18.

            Electronic Records.  An increasingly popular method of dealing with records is to store records in electronic form.  Electronically stored information is becoming more and more popular as the cost to store voluminous paper records increases.  The IRS, the State of Washington and other departments of the federal government generally permit records to be stored in electronic form, so long as certain minimal standards are met.  Therefore, before digitizing paper documents, you should always check with the appropriate agency to make certain you are conforming to its electronically stored information standards.  Once paper records have been converted to electronically stored information the electronic version should likewise be safeguarded for at least the same time period applicable to the paper version of these records before they are destroyed.

            The time periods I am recommending are admittedly very conservative, but given the inconvenience of storing files an additional year or two versus the risk of a claim being made years from now, I’ve always opted to recommend clients retain their files a year or two longer than many recommend, just to be on the safe side.

 After Hours

            I have always looked forward to Spring when the new Rose´ wines are released.  When the sun comes out and it is warm enough to sit outside and enjoy the weather, nothing is better than a glass of Rose´ wine.  It wasn’t all that many years ago when one would visit a wine shop or a supermarket and find less than a half dozen choices of Rose´.  Recently I was in a supermarket which had eight shelves devoted exclusively to Rose´.  While about half the Rose´ we find locally comes from France there are ever increasing wineries in Washington, Oregon and California that produce excellent Roses´.

Barnard-Griffen Rose´ of Sangiovese is one of my favorites.  It is widely available in Washington (where it is made) and is almost always on sale for around $11.00.  This wine consistently wins double gold  medals at the prestigious San Francisco Wine Competition.

Another favorite of mine is A to Z Rose´ of Pinot Noir.  This Oregon wine is available almost everywhere in Oregon, but less so in Washington.  However it shouldn’t be too difficult to find usually on sale for around $12.00.

One word of caution.  I like my Rose´ to be somewhat dry so if you prefer off-dry Rose´ you should have no trouble finding a little sweeter Rose´ among the myriad selections available at any wine shop or large supermarket.