But by looking only to these sources for guidance, it’s easy to miss state-based requirements that your business may need to follow to avoid fines or other sanctions. One such law is 18 CCR 19141.6 under California’s Franchise and Income Tax regulations, which has a longer than seven years retention requirement .

What is 18 CCR 19141.6?

18 CCR 19141.6 outlines the retention requirements of income records in light of the California Franchise Tax, which applies to “every corporation that is incorporated, registered, or doing business in California.”[1] Specifically, 18 CCR 19141.6(i)(1)(A) requires businesses keep “records for any income” for eight years from the due date of the of the applicable tax return.

Section (i) of the regulation outlines scenarios where records must be kept for longer than eight years. But under standard circumstances, records related to income must be retained for eight years, which is the timeframe in which the state could adjust the income.

Why Does 18 CCR 19141.6 Matter?

Most laws governing records retention related to income have retention periods shorter than eight years. Thus, businesses to which 18 CCR 19141 applies must be aware of this law. Otherwise, they risk destroying records prematurely.

Beyond being longer than most income record-related retention periods , 18 CCR 19141.6 is also more widely applicable than it appears. On its face, the regulation applies to for-profit businesses in California. But a more thorough analysis reveals that 18 CCR 19141 applies to several other types of businesses as well.  For example, tax-exempt businesses are required to demonstrate to the Franchise Tax Board that they are indeed operating like a tax-exempt entity.[2] Accordingly, organizations organized as nonprofits or charities must comply with 18 CCR 19141.6 and keep their income records for eight years.

 Penalties and Other Consequences

You’re probably asking by now, “what happens if my business is audited, and I don’t have these records?” The answer to that question depends on your business type.

For any kind of business (whether for or non-profit), you could face monetary penalties. 18 CCR 19141.6(j)(1)(A) states that a fine of “$10,000 shall be imposed for each income year with respect to which such failure [to maintain records] occurs.”

This monetary penalty doesn’t stop there, however. 18 CCR 19141.6(j)(1)(B) goes on to state that “If a taxpayer fails to maintain . . . records as required by this regulation for multiple related parties, the monetary penalty may be imposed for each failure to maintain records with respect to each related party.” In other words, the $10,000 fine could be applied several times over if multiple related parties are involved.

For tax-exempt entities specifically, multiple consequences can ensue. These include a loss of tax-exempt status, loss of interest from donors because of losing tax-exempt status, or ultimately having to pay the Franchise Tax.

Conclusion

The moral of the story (or regulation in this case) is that businesses of all kinds in California should, at a minimum, be aware of 18 CCR 19141.6. Conventional—or even reasonable—retention periods for tax records are likely to fall short of the eight-year period found in 18 CCR 19141.6, leaving well-intentioned businesses exposed in the event of an audit.

[1] https://www.ftb.ca.gov/file/business/types/corporations/index.html

[2] https://www.ftb.ca.gov/file/business/types/charities-nonprofits/annual-and-filing-requirements.html

Disclaimer: The purpose of this post is to provide general education on records retention scheduling software. The statements are informational only and do not constitute legal advice. If you have specific questions regarding the application of the law to your business activities, you should seek the advice of your legal counsel.

The post You’re Probably Not Keeping Your U.S. Tax & Accounting Records Long Enough appeared first on Zasio.

Author: Jared Walker, JD

Senior Research Analyst, Team Lead / Licensed Attorney

The post International Tax Record Retention Period by Country appeared first on Zasio.

Many people know that the federal IRS tax audit period is 3 years (or 6 + years if the IRS finds substantial errors). In fact, on its website, the IRS suggests businesses retain records. They suggest you keep records that show income, deduction, or credit. So yes, this period typically amounts to 3 years. But, depending on the circumstances or the particular records you keep, this can extend to 4, 6, or 7 years and sometimes indefinitely.

So how do you comply with federal and state requirements? Make sure your tax records align with audit limitation periods. This alignment minimizes hassle or complications that develop from inadequate or missing records during an audit.

In short: have a proper retention plan in place. Know the tax recordkeeping laws for your federal and local jurisdictions and be familiar with the tax audit limitation periods. Utilize retention scheduling software for your tax records that is responsive to the relevant legal requirements and covers your bases. Proper recordkeeping foresight and planning helps to avoid possible legal, compliance, or other issues down the road.

Contact Zasio today to see how our innovative products and services can meet your recordkeeping and information governance software needs.

Disclaimer: The purpose of this post is to provide general education on Information Governance topics. The statements are informational only and do not constitute legal advice. If you have specific questions regarding the application of the law to your business activities, you should seek the advice of your legal counsel.

The post It’s Tax Season Again: How Long Should I Keep Tax Records? appeared first on Zasio.