DO YOU KNOW WHERE YOUR TAX RETURN IS - FROM 21 YEARS AGO?


DO YOU KNOW WHERE YOUR TAX RETURN IS - FROM 21 YEARS AGO?


My clients think I’m exaggerating when I say “Keep a copy of your tax return for 3 years – after you’re dead.” A phone call I received several years ago illustrates why this is no joke.


Back in 2010 I received a call from a taxpayer in California named Arnold. (No, not Arnold Schwarzenegger.) He said he had been referred to me by a friend; not surprising, since I have clients in the Golden State, and 40 other states, too.


It turns out Arnold had lived in New York years earlier. He had just received an ominous letter from the State of New York, stating he hadn’t filed a New York State tax return back in 1989.


I asked Arnold, “Do you have your ’89 tax return?” To which he replied, “No, that was 21 years ago!”


Arnold told me he was sure that he had filed a tax return every year, including 1989. He had used a New York CPA to file his tax returns when he lived in NYC, but he couldn’t remember who the CPA tax preparer was, and he had not kept a copy of his tax returns. Not only was New York State saying he hadn’t filed a tax return for ’89, they said he should have paid $40,000 in tax that year. After adding penalties and interest, New York State was now presenting Arnold with an amount due of $100,000.


Who knows what happened to that state tax return he was sure had been filed? Maybe it got lost in the mail. Maybe there was a glitch in New York State’s system. The problem was, Arnold had no proof that he had filed that business tax return, because he wasn’t in the habit of keeping all of his tax returns.


Although the IRS and State governments are bound by a 3-year statute of limitations, the clock doesn’t start ticking until the date a return is filed. If they have no record of you filing a return, that statute of limitations has no expiration date.


I told Arnold that I was sorry, but there was nothing I could do to help him. I knew that New York State would reach across to California to get its money, if not outright then by filing a lien against him.


People think these things can’t happen. This was a rare case – the only time I’ve taken a call like that in 30 years of being a practicing CPA. But it proves the importance of what I always say: Keep your tax returns for 3 years - after you’re dead!

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