Consider This:
What to Do with Old Records

By Jimmy R. Hammond

A few years ago on a quiet summer Sunday morning I called my mother for my weekly family update. My mother answered the telephone all out of breath and, from her demeanor, I assumed she was also hot and tired. She promptly announced that she had just finished organizing and boxing 30 years worth of old bank statements with checks and tax returns. She then asked,"How long do I have to keep these records?" When I told her about three years, her groan was prolonged and punctuated by "Why didn't I ask you first?" My mother's efforts and reaction are no doubt echoed every day by someone across America. They just don't know what to keep and how long to keep it.



With the advent of electronic bill-paying services like www.paytrust.com or www.bankofamerica.com, the documents in your personal finances or those used to prepare your income tax return are imbedded in a server that is dedicated to your documents. This data can be downloaded to your computer or sent to you annually on a CD for a small fee. This past week I downloaded all of my 2004 bank statements to my computer in a matter of minutes which I will now retain electronically for the statutory period associated with my income tax returns. It isn't absolutely true - remember humans are involved - but, in most instances, copies of the supporting materials used to prepare your income tax returns are adequate for most inquiries made by the Internal Revenue Service. Regardless, in most instances (unless you enter into an agreement with the IRS or other taxing authority to extend the statute or have special circumstances defined by the Internal Revenue Code (IRC) such as Bankruptcy Petition (IRC 6036{h}); Receivership (IRC 6036 & 6872); Application for Taxpayer Assistance order (IRS 7811 {d}); Summons issued by the IRS to third-party (IRC 7609 {a}, (IRC 7609 {e}{1} and (IRC 7609 {f}), the record retention period or statutory holding period is only three years. The three-year period commences the date the return is due or the date the return is filed, whichever is later. The three year statutory period will become six years if you inadvertently under report your income by more than 25% in any single year and the statute never ends if a knowingly incorrect or fraudulent return is filed. For the vast majority of taxpayers, these exceptions or caveats do not apply. A quick call to your accountant can put your fears to rest and, if you have the courage, time and patience, call your local IRS office.

With all that said, there are a few bits, pieces or documents from your past that are important and relevant long after the three or six year statutes expire. Documents, for example, that prove the purchase price of stocks, the purchase of a home, the purchase of a car that is used in business could be 30 years old, as is the case with our home settlement documents, and still be relevant. Remember: basis of your home is something that can change every year over the holding period. Life-long transactions like a home will be needed when you finally sell the house and need to document the basis for determining the gain on the home sale. This doesn't change the statute; it just means that you will need those documents to make the calculations long after the original transitions occurred and the statute expired.

To make this process more palatable, Sir Speedy, a local printer-copier business, owned by Matt Franko, now has an on-site document storage system that will allow him to digitize all of your documents, as long as they will go through or fit on his scanner. The document imaging system scans your documents into Adobe Portable Data Format (PDF). Most of you should be familiar with PDFs from an article I wrote last year or from your use of the Adobe Acrobat Reader that appears universally on the web today. For those of you who can't pull yourself away from keeping real documents forever, this might be a baby step you can take before a full conversion. The step that follows this process is to buy a small shredder unit to destroy the actual documents or, if that looks like too many days and you have too little time, to contact one of the commercial document destruction firms like Iron Mountain at www.ironmountain.com/Index.asp; Shred-It at www.shredit.com; Secure Shredding Services at www.secureshreddingservices.com or Safe Guard Shred www.safeguardshred.com. Check your yellow pages for the one closest to you. These firms specialize in on-site and off-site destruction. Most companies are available to shred a little or a lot and are priced on an hourly basis. With all the horrible stories about identity theft, leave nothing to chance, shred it. This shredding process will increase the volume of paper significantly. Be prepared to have a few bags in the trash or call some local pet stores, which will sometimes use the shredded product for pet bedding. Consider keeping some for packing materials; it's light-weight and works great. How about a document destruction day in the community? Remember: you saw that here first.