What to Do If You’ve Lost Important Tax Documents

Don't panic! You can replace or do without almost any tax-related paperwork you need to prepare a business tax return.
Freelance Writer, Self-employed
March 13, 2014

April may be the cruelest month when it comes to filing income taxes. But exactly how much hassle filing will be is partially decided in the year’s earlier months. In January through March, filers should be receiving or gathering important documents such as 1099 miscellaneous income and bank interest income statements, K-1 partnership statements and receipts for business expenses. If any of the documents needed to prepare a return never arrived or can’t be located, it can lead to delay, frustration and possible penalties.

The Penalties

How common is it for a filer to find he or she is lacking some vital document needed to prepare a  return? “Very common,” says Cindy Hockenberry, a 30-year veteran of the tax business who manages the tax knowledge center at the National Association of Tax Professionals in Appleton, Wisconsin. “Everyone loses something at one time or another.”

Unfortunately, the Internal Revenue Service is not necessarily so forgiving of human frailty. While a return filed without complete documentation may not be rejected, it also may not be considered filed until the required documents are provided. The IRS charges penalties for incomplete filing that vary depending on the specific form and missing information. For instance, an incomplete partnership or S-corporate return could generate a penalty of $195 for each person who was a partner or shareholder during the tax year.

Penalties for incomplete filings are likely to be less than the 5 percent penalty of tax due that is levied for filing and paying late. So it’s usually best to file on time, even if without complete documentation. And, in any event, there are ways to replace almost any document you may need to file.

How to Get Replacements

For instance, if you are a self-employed consultant who is missing a 1099 for income from a consulting engagement, you can contact the issuer—the customer that paid you—for a replacement. Often, 1099s may be missing because the issuer has the wrong address for you. So it’s a good idea to call if a 1099 hasn’t arrived by mid-February or so to get the error corrected and the document en route.

Missing 1099s for interest income issued by banks can be also be replaced by asking the issuer to send a duplicate. The same goes for K-1 returns issued by partnerships. Banks also often have 1099s available on their websites. “Since all information returns are required to be filed with the IRS, they also have copies that can be sent to the taxpayer upon request,” Hockenberry adds.

A prior year’s return is often necessary to complete the current year’s return. You may, for instance, need to know details of depreciation taken on previously purchased equipment. If that prior return has been lost or destroyed, you can get a copy from the IRS. The IRS has a new online “Get Transcript” tool on IRS.gov that allows for instant downloading and printing of prior return transcripts.

Taxpayers can also request transcripts of prior year returns by filing Form 4506 with the IRS. The form can be downloaded at IRS.gov. “These transcripts will include tax return information including W-2s, 1099s, etc.,” Hockenberry says.

There’s no similar formal system set up for replacing lost receipts and other supporting document. However, often a filer can use the description of a transaction from a bank account or credit card statement in lieu of the original paper receipt. For cash receipts, try contacting the vendor to see if a copy of the transaction record can be obtained.

“Everything is replaceable,” Hockenberry declares. However, she adds, in some cases the problem is not only that a document has been lost, but that the filer can’t recall exactly what has been lost. For example, a fire, flood or other disaster can eradicate records so completely and comprehensively that a taxpayer doesn’t know where to look for a replacement.

“In such cases, the IRS is surprisingly merciful,” Hockenberry says. She says that tax collectors can often accept reasonable estimates of important amounts based on past history, bank records and prior financial statements.

What You Can Do

As with many business problems, the best way to deal with lost documents is to not lose them to begin with. Of course, not much can be done to keep document issuers from making mistakes. And, given human forgetfulness and the volume of documents required to operate a business, it’s likely that lost paperwork will always be a feature of tax time.

However, there is much you can do to reduce the frequency and seriousness of misplacing key forms. Scanning and digitizing paper receipts, backing up files and using cloud-based storage and remote servers can all help keep occasionally forgetful business owners from experiencing more than brief inconvenience from lost paperwork. Even if flood or other disaster wipes out all a business’s records, these data safety practices can keep April from being any crueler than necessary. With that in mind, Hockenberry advises, “Business owners should seriously consider off-site storage of important documents.”

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Photo: Getty Images

Freelance Writer, Self-employed