Its a fire - these dreams they pass me by

A friend recently asked if she could get rid of records from a business that ceased operations 7 years ago - well, technically she wanted to burn it all because it wasn't the best experience (happy ending, she now owns a business she loves).

My first instinct was no!  As emotionally cathartic as it would be - there must be some reason to hold onto those documents?  And the answer - in this case - is probably not.  In terms of the IRS, there are three basic statutes of limitations:

• Three years - The IRS can contest any return they like for any reason 3 years after it has been filed (basically)
• Six years - The IRS has a number of exceptions to the three year rule where they can still contest your return
• Unlimited - If you have intentionally filed a fraudulent and they can prove that, there is no statute of limitations.

This is extremely basic - but lends most businesses to the "7 year" rule.  So, the answer is yes, you can destroy documents after seven years WITH ONE EXCEPTION:

Any documentation relating to "basis", or what you paid for an asset should be kept for the life of the asset.  The IRS always assumes basis is $0.00 - the burden is on the taxpayer to prove what they paid.  So, if next year she sold some equipment related to that business for $1,000 - the IRS will assume a gain of $1,000 unless she could prove otherwise.

I don't have my official blog disclaimer - yet - but you know you can't take tax advice from a blog on the internet into tax court, right?