The question often comes up of how long taxpayers should retain their tax and business records. There is no hard and fast answer to this question.
Some records are worth holding on to forever, since it can be hard to determine whether an issue from those documents may be relevant in a later tax years. For the rest, a useful guide is the six year federal income tax statute of limitations period that applies for tax returns that omit 25% or more items of income. Since this statute can apply by inadvertently leaving off income items from a return, relying on the standard three year statute of limitations, while acceptable, is clearly not a conservative retention policy.
A recommended retention policy is attached here, and is also being added to the Links portion of this site in the right-hand column. The policy assumes that all returns are timely filed, principally because the statute of limitations for income tax returns remains open for unfiled returns. Note that legal and business considerations other than federal income taxes may result in retention periods longer than those described on the retention policy. Further, income statute of limitations can apply beyond six years - for example, there is no statute of limitations on fraud. Therefore, the recommended periods represents a balance between reasonably likely need for records and the most conservative retention policy of retaining everything forever.
As a practical matter, with the use of modern electronic recordkeeping and storage, there is little extra cost to attempting to retain records for an extended period of time, other than perhaps being able to read (and convert if necessary) from old storage media and file types.