If you’ve ever asked how long you should hold onto your tax returns after they’ve been filed, you’ve probably heard the standard advice: keep your tax records for at least six years. That covers the three-year statute of limitations for the IRS to audit a return, plus a buffer in case the IRS suspects substantial underreporting (which extends the window to six years). For most taxpayers, that’s sound guidance.

But there’s an important exception you should be aware of, one that affects a lot of the military and veteran families we serve at PIM Tax Services. If you have losses that carry forward to future years, the six-year rule may not be enough.

I’m talking about three common categories:

  • Net Operating Losses (NOLs)
  • Capital Loss Carryovers
  • Suspended Passive Activity Losses (SPALs) from rental properties

If you’ve ever had one of these loss carryforwards, you may need to hold on to records much longer than you think. The 11th Circuit Court of Appeals recently upheld a U.S. Tax Court decision in the case of Betty Amos v. Commissioner (T.C. Memo. 2022-109, aff’d 11th Cir. Apr. 2, 2024), and it drives this point home in a big way.

What Happened in the Amos Case

Business owner Betty Amos reported very large NOL carryforwards on her 2014 and 2015 returns, more than $4 million each year. She said those losses originated back in 1999 and 2000. (Net operating losses occur when your business deductions are higher than your income, giving you net negative income on your form 1040. These losses can be carried forward to future tax years.)

The IRS disagreed with her reporting, disallowed the deductions, and hit her with accuracy-related penalties. When she went to Tax Court, she produced her 1999 and 2000 returns and some worksheets for later years. But she did not have complete records showing how those losses flowed through every year from 2001 to 2013. Amos argued the statute of limitations for auditing returns is 6 years, so the IRS could not disallow any of her NOL figures from the tax returns more than 6 years old.

The Tax Court ruled against her. Judge Urda emphasized that the burden of proof is always on the taxpayer to substantiate deductions, including losses carried forward. The fact that the IRS hadn’t audited those “intervening” years didn’t matter. The Court explained that while the IRS cannot reopen a closed year to assess new tax, it can look back into those years to verify whether a loss actually exists and is still available in the open year.

Because Amos couldn’t provide a year-by-year trail, her $4+ million deductions disappeared, and the penalties stuck.

Why This Matters for You

Most families don’t have eight-figure NOLs floating around. But plenty of people, including military families, have losses carried forward from one year to the next:

  • Maybe you rented out your home when you were moved to a new duty station, and it generated passive losses.
  • Maybe you sold stock at a large loss in one year, and you’re carrying forward unused capital losses.
  • Maybe you had a business venture that created losses you’re still carrying forward.

In all these situations, the IRS has the right to ask you to substantiate not just the original loss but every year of carryforward until the year they’re claimed. If you can’t show the chain of records, you risk losing the deduction entirely.

The Six-Year Rule, and Why It Falls Short

Here’s the core problem: the six-year rule is based on the statute of limitations for audits. For most deductions and income items, once a year is closed, the IRS can’t come back and change it.

But carryforwards are different. Even if the year the loss originated is closed, the IRS can review that year to determine whether the loss was valid and properly applied in later years. That means the records for those early years remain relevant as long as the loss affects your taxes.

So, if you generate a passive loss in 2025 that doesn’t free up until you sell the property in 2035, you may need to hold on to your 2025 paperwork until 2042!

Three Types of Losses That Require Extended Record-Keeping

  1. Net Operating Losses (NOLs)

NOLs typically arise from business activity. If your deductions exceed your income in a given year, you may have an NOL. Current law lets you carry those losses forward indefinitely (subject to an 80% limitation).

What to keep:

  • Complete tax returns from the year the NOL originated forward.
  • Worksheets showing how much was used in each year.
  • Business records proving the original loss.
  1. Capital Loss Carryovers

If your capital losses (like stock sales) exceed your capital gains in a year, you can only deduct up to $3,000 against ordinary income annually. The rest carries forward indefinitely.

What to keep:

  • Brokerage statements and trade confirmations for the original loss year.
  • Schedule D and capital loss carryover worksheets for each year until the losses are fully used.
  1. Suspended Passive Activity Losses (SPALs)

These often arise from rental real estate or limited partnerships. If your losses are more than your passive income, the extra gets suspended and carried forward. They only become deductible when you have enough passive income or dispose of the activity.

What to keep:

  • Form 8582 worksheets showing annual suspended losses.
  • Rental or partnership records that generated the losses.
  • Closing statements or sale documents when the activity is disposed.

How Long Should You Keep Records?

The safe answer: As long as the tax attribute could possibly affect your return.

That means:

  • For NOLs: until the entire loss has been absorbed.
  • For capital losses: until the carryover is used up.
  • For SPALs: until the activity is sold and all suspended losses are released.

In practical terms, that may mean keeping some records for decades.

What This Looks Like in Real Life

Let’s say you sold stock at a $50,000 loss in 2018. You use $3,000 against ordinary income each year. By 2025, you’ve only used $21,000. You still have $29,000 left to carry forward.

If the IRS audits your 2025 return and asks about that $29,000, you need to be able to show the 2018 trade confirmations and your 2018 Schedule D. Without them, the deduction could be denied—even though 2018 is long closed.

Lessons from Amos

The Amos case shows the IRS and the courts take this seriously. Betty Amos was a CPA with decades of experience, but because she couldn’t produce a complete chain of records, she lost millions in deductions and got hit with penalties.

If it can happen to a tax professional, it can happen to anyone.

Final Thoughts

For most taxpayers, six years of record-keeping is plenty. But if you have NOLs, capital loss carryovers, or suspended passive losses, you need to think differently. Keep your records until the loss is completely used up—even if that means 20 or 30 years.

At PIM Tax Services, we don’t just prepare your return for this year—we help you plan for future years, too. That means helping you track carryovers, organize your records, and avoid the kind of painful surprises that derailed Betty Amos’s case.

If you’d like us to review your tax situation and help set up a record-keeping system that works, give us a call. It’s one of the best ways to protect your deductions and your peace of mind.