If a taxpayer files a claim for a loss, how long must they retain records after the return was filed?

When a taxpayer files a claim for a loss, it's important to retain records for an adequate period to support the information reported to the IRS. The correct response indicates that records should be kept for seven years after the return was filed, particularly when claiming a loss.

This seven-year retention period is significant because the IRS allows for specific situations where losses may be challenged or audited beyond the usual three-year statute of limitations for most returns. If a taxpayer has claimed a loss related to a bad debt deduction or a capital loss, the IRS may need to review these records in case of an audit or inquiry related to that particular loss. Retaining records for seven years helps ensure that the taxpayer can substantiate their claim and meets record-keeping requirements established for tax purposes.

In contrast to the other suggested periods, three years is typically sufficient for general record-keeping under normal circumstances, while six years might apply under certain conditions related to substantial underreporting. Ten years exceeds what is necessary in this context for loss claims, making seven years the most appropriate amount of time.