Three Years

• If you owed additional tax on your annual tax return, then it is advisable to keep your financial records and completed tax return for three years. During that time, an IRS auditor can contact you about the underpayment of your taxes. If you paid the additional tax by April 15 and mailed your tax return on time, it is less likely that the IRS will initiate an audit. If you did not owe any additional tax or you were eligible for a tax refund, the IRS recommends that you keep your tax return for three years for proof of income, deductions and adjustments in the event of an audit.
  
  

Six Years

• If there were errors or unreported income on your tax return, it is advisable to keep the return for six years. According to IRS guidelines, if you did not report income that you are legally required to report, and the unreported income exceeds 25 percent of the gross income shown on your return, then you should keep your tax return for six years. If an IRS audit reveals that you purposely did not report the income, the offense is punishable by law, with fines assessed on your return.
  
  

Seven Years

• If your federal tax return includes capital losses from a worthless security, it is advisable to keep your tax return for seven years. IRS audits can require extensive research into the value of a worthless security, and questions concerning the transaction may occur up to seven years after you report the loss. It is advisable to keep all financial documents proving that the security became worthless.
  
  

Indefinitely

• Fraudulent tax returns are a serious offense. According to IRS guidelines, it is advisable to keep a fraudulent tax return indefinitely. Due to the nature of the offense, you will need documentation explaining why the tax return is fraudulent. An IRS agent can contact you anytime concerning a fraudulent tax return, so it is best to keep it indefinitely.