How Long Should You Keep Tax Records? Carryforwards Can Require Decades of Documentation

Federal tax recordkeeping is not governed by a single rule that allows every tax document to be discarded after a fixed number of years. When a current tax return depends on a loss, credit, deduction, or other tax attribute originating in an earlier year, records from that earlier year may still be necessary to substantiate the current return.

IRC § 6001 requires taxpayers to maintain records as prescribed by the Treasury Department. Treasury Regulation § 1.6001-1(a) requires records sufficient to establish gross income, deductions, credits, and other matters required to be shown on a tax return. Treasury Regulation § 1.6001-1(e) further provides that required records must be retained as long as their contents may become material in the administration of any internal revenue law.

Key point: A carryforward appearing on a prior tax return or in tax preparation software does not, by itself, establish that the taxpayer is entitled to use that amount. The taxpayer must be able to substantiate the tax attribute when it affects a return.

A Recent Tax Court Case Shows the Risk

The Tax Court addressed this issue directly in Gerald A. Beacom and Jean A. Beacom v. Commissioner, T.C. Memo. 2026-65.

The taxpayers claimed an alternative minimum tax credit that apparently originated sometime between 1999 and 2005. Mr. Beacom testified that he believed the credit may have resulted from the exercise of stock options in 1999 or 2000, but he could not recall the details. Their tax preparation software tracked and applied the credit in later years.

The taxpayers reported a $57,025 alternative minimum tax credit carryforward on their 2017 return. They used portions of the credit in 2017, 2018, 2019, and 2020. On their 2021 return, they applied another $11,057 of the credit and reported a remaining carryforward of $30,228.

The IRS disallowed the $11,057 credit claimed for 2021.

The central problem was substantiation. A flood in 2008 had destroyed returns and other records from before 2008, and the taxpayers were unable to access records from those earlier years through their tax software. They produced copies of certain later tax returns showing that an alternative minimum tax credit was being carried forward, but they could not produce the return establishing the original alternative minimum tax liability or a complete record showing the creation and subsequent use of the credit.

The Tax Court concluded that the evidence did not establish the source of the credit or allow the Court to determine what amount, if any, remained available for 2021. The Court therefore sustained the IRS disallowance of the $11,057 credit. Beacom v. Commissioner, T.C. Memo. 2026-65.

The Court also sustained a $2,211.40 accuracy related penalty under IRC § 6662(a) and § 6662(b)(2) attributable to the resulting substantial understatement of income tax.

An Earlier Tax Year Can Still Matter

The fact that a tax attribute originated in an earlier year does not necessarily make the facts from that year irrelevant when the attribute affects a later tax return.

IRC § 6214(b) specifically provides that, when redetermining a deficiency for a year properly before it, the Tax Court must consider facts relating to taxes for other years when necessary to correctly determine the deficiency. The Court does not thereby obtain jurisdiction to determine whether tax for those other years was overpaid or underpaid.

The Tax Court applied that principle in Beacom. The taxpayers were claiming an alternative minimum tax credit on their 2021 return, so the Court had to consider the earlier years in which the credit allegedly arose and was subsequently carried forward. Beacom v. Commissioner, T.C. Memo. 2026-65; IRC § 6214(b).

Why this matters: The normal assessment period for an earlier return and the need to substantiate an item appearing on a later return are separate questions. If information from an earlier year is necessary to establish an item claimed on a current return, that information can remain material to the current tax determination.

There Is No Universal Seven Year Record Retention Rule

One of the most important parts of Beacom concerns the taxpayers' argument that they were permitted to discard older records because they understood IRS guidance to require retention for no more than seven years.

The Tax Court rejected that argument.

The Court did not establish seven years as a universal federal record retention period. Instead, using the seven year period asserted by the taxpayers, the Court explained that they were measuring the period from the wrong return. The records supporting the alternative minimum tax credit used in 2021 needed to be retained by reference to the return on which the credit was being applied, rather than simply measuring seven years from the much earlier year in which the alternative minimum tax was originally paid.

Footnote 5 of the Beacom opinion is particularly important. The Court explained that it was using the taxpayers' claimed seven year period to illustrate the point and noted that the appropriate retention period depends on the applicable period of limitations under IRC § 6501.

The broader regulatory standard is found in Treasury Regulation § 1.6001-1(e). Required books and records must be retained as long as their contents may become material in the administration of any internal revenue law.

For a tax attribute that continues to affect later returns, records establishing that attribute may therefore remain material long after the year in which the underlying transaction originally occurred.

Carryforwards Appear Throughout the Tax Code

The issue in Beacom involved an alternative minimum tax credit under IRC § 53, but the recordkeeping principle can also be relevant to other tax attributes that are carried into later taxable years.

• Alternative minimum tax credits. IRC § 53 allows a credit for prior year minimum tax liability subject to the requirements and limitations contained in that section.
• Individual capital loss carryovers. IRC § 1212(b) provides rules for carrying net capital losses of taxpayers other than corporations into succeeding taxable years.
• Net operating loss carryovers. IRC § 172 contains the rules governing net operating loss deductions, carrybacks, and carryovers. The applicable rules depend in part on the taxable year in which the loss arose.
• Suspended passive activity losses and credits. IRC § 469(b) generally provides that a passive activity loss or credit disallowed under § 469(a) is treated as a deduction or credit allocable to the activity in the next taxable year, subject to the other provisions of § 469.
• Charitable contribution carryovers. IRC § 170(d) and related provisions contain rules for carrying certain charitable contributions into succeeding taxable years when the applicable deduction limitation prevents their full use in the contribution year.
• General business credits. IRC §§ 38 and 39 govern the general business credit and the carryback and carryforward of unused business credits. Section 39 generally provides a one year carryback and a twenty year carryforward, subject to the rules and exceptions contained in that section.
• Section 179 expense carryovers. IRC § 179(b)(3)(B) provides for the carryover of amounts disallowed because of the taxable income limitation under § 179(b)(3)(A).
• Foreign tax credit carryovers. IRC § 904(c) generally provides a one year carryback and a carryover to the first ten succeeding taxable years for excess foreign taxes subject to the limitations and ordering rules of that section.

These provisions illustrate why there cannot be one retention period for every carryforward. Different tax attributes have different statutory rules, carry periods, limitations, and methods for determining how much remains available in a later year.

What Records Should Be Preserved?

IRC § 6001 and Treasury Regulation § 1.6001-1 require records sufficient to establish items reported on a return. The exact documents needed will therefore depend on the particular tax attribute and the facts that created it.

As a practical method of satisfying that substantiation requirement, a taxpayer with a material carryforward should consider preserving records that establish both the origin of the tax attribute and its subsequent history. Depending on the particular item, those records may include:

• The complete tax return for the year in which the tax attribute originated
• The forms and schedules computing the original loss, credit, deduction, or other tax attribute
• Underlying records necessary to establish the original calculation
• Subsequent tax returns and schedules showing amounts used and amounts carried into later years
• Amended returns that changed the amount of the tax attribute
• IRS examination adjustments or other tax adjustments affecting the balance
• A reconciliation showing the original amount, amounts previously used, and the balance remaining

This list is a practical recordkeeping recommendation rather than a separate statutory document list. The governing legal requirement remains that the taxpayer maintain records sufficient to substantiate the return item and retain those records while their contents may remain material. IRC § 6001; Treas. Reg. § 1.6001-1(a) and (e).

Practical recommendation: Do not dispose of the records that establish a carryforward merely because a fixed number of years has passed since the year in which the item originated. First determine whether the item can still affect a current or future return and whether the underlying records may therefore remain material under Treasury Regulation § 1.6001-1(e).

Tax Software Does Not Establish the Underlying Tax Attribute

The taxpayers in Beacom relied on TurboTax to prepare their returns and track their alternative minimum tax credit. The software carried the credit from year to year, but the existence of that continuing software balance did not establish the original source or validity of the credit.

The Tax Court cited Bunney v. Commissioner, 114 T.C. 259, 267 (2000), for the principle that tax preparation software is only as reliable as the information entered into it.

The Beacom Court also concluded that the taxpayers' reliance on TurboTax did not constitute reliance on professional tax advice for purposes of their reasonable cause defense. They remained responsible for the information used to prepare their return. Beacom v. Commissioner, T.C. Memo. 2026-65; IRC § 6664(c); Treas. Reg. § 1.6664-4(b)(1).

The practical consequence is important. A tax software file or a prior return may show that a carryforward exists, but taxpayers should also preserve the records necessary to establish where the amount came from and how the remaining balance was determined.

Changing Tax Preparers Can Expose Missing Carryforward Records

Treasury Regulation § 1.6001-1 places the recordkeeping obligation on the taxpayer. The obligation does not depend on whether the same tax preparer or the same tax preparation software is used from year to year.

As a practical recommendation, taxpayers changing preparers should identify any material carryforwards appearing on the current return and preserve the records needed to substantiate their origin and subsequent use. This can include older records when those records remain necessary to establish an amount affecting a current or future return.

This recommendation follows from the substantiation requirement of IRC § 6001 and Treasury Regulation § 1.6001-1 and from the result in Beacom, where later returns showing an existing carryforward did not establish the credit's original source.

What If the Original Records Were Destroyed?

The destruction of records does not automatically eliminate the taxpayer's burden to substantiate a claimed tax item.

In Beacom, the taxpayers explained that a 2008 flood had destroyed their earlier records. The Tax Court cited Al-Soufi v. Commissioner, T.C. Memo. 2015-68, for the principle that a taxpayer who loses records through no fault of the taxpayer is not thereby relieved of the burden of substantiation.

The Court also relied on Roumi v. Commissioner, T.C. Memo. 2012-2, in discussing the taxpayers' failure to make a reasonable effort to reconstruct their records or present other credible evidence supporting the claimed credit.

Accordingly, when records necessary to support a material tax attribute have been lost, the existence of the loss does not by itself establish entitlement to the deduction or credit. Whether the taxpayer can reconstruct sufficient evidence depends on the facts and the available evidence. Beacom v. Commissioner, T.C. Memo. 2026-65; Al-Soufi v. Commissioner, T.C. Memo. 2015-68; Roumi v. Commissioner, T.C. Memo. 2012-2.

A Carryforward Schedule Can Help Preserve the History

Neither IRC § 6001 nor Treasury Regulation § 1.6001-1 specifically requires taxpayers to maintain a document called a carryforward schedule. The legal requirement is to maintain sufficient records to establish the amounts reported on a tax return.

As a practical recordkeeping procedure, maintaining a reconciliation for a significant carryforward can help preserve the information necessary to satisfy that requirement. The reconciliation can identify the year of origin, the original amount, amounts used in later years, adjustments to the balance, the remaining amount, and the statutory provision governing the tax attribute.

The reconciliation should supplement, rather than replace, the underlying records necessary to substantiate the tax attribute.

The Bottom Line

The lesson from Beacom v. Commissioner is broader than alternative minimum tax credits. When a tax attribute from an earlier year affects a later return, the taxpayer must be able to substantiate entitlement to the amount claimed.

A prior return or tax software may show that an amount has been carried forward, but that does not necessarily establish the origin, validity, or remaining balance of the underlying tax attribute. Beacom v. Commissioner, T.C. Memo. 2026-65.

There is also no universal federal rule allowing every tax record to be discarded after seven years. Under Treasury Regulation § 1.6001-1(e), required records must be retained while their contents may become material in the administration of the tax laws.

For taxpayers with capital loss carryovers, passive activity losses, net operating losses, alternative minimum tax credits, charitable contribution carryovers, business credits, or other tax attributes extending into later years, that rule makes the history of the carryforward an important part of the records supporting the current return.

Federal Tax Authorities

Recordkeeping: IRC § 6001; Treas. Reg. § 1.6001-1(a) and (e).

Tax Court consideration of other years: IRC § 6214(b).

Alternative minimum tax credit: IRC § 53.

Examples of carryover provisions: IRC §§ 39, 170(d), 172, 179(b)(3)(B), 469(b), 904(c), and 1212(b).

Penalty and reasonable cause provisions: IRC §§ 6662(a), 6662(b)(2), 6662(d), and 6664(c); Treas. Reg. § 1.6664-4(b)(1).

Cases: Gerald A. Beacom and Jean A. Beacom v. Commissioner, T.C. Memo. 2026-65; Bunney v. Commissioner, 114 T.C. 259 (2000); Al-Soufi v. Commissioner, T.C. Memo. 2015-68; Roumi v. Commissioner, T.C. Memo. 2012-2; Vichich v. Commissioner, 146 T.C. 186 (2016).

Have carryforwards from older tax returns?

If your current tax return includes losses, credits, or other tax attributes originating in earlier years, I can review the available records, trace the carryforward history, and identify documentation that may be needed to support the amount reported on the return.

Contact Steven J. Cashiola, CPA