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Records. How long must we keep them?
Organizing, filing, and retaining old records are
burdens for many businesses. Records should be preserved only as long as
they serve a useful purpose, or until all legal requirements are met. To
keep files manageable, it is a good idea to develop a schedule so that
at the end of a specified retention period, certain records are
destroyed.
In addition, do not overlook the possibility that there
may be more than one copy of a record, such as a central-file copy and a
department copy. Thus, be sure that your record retention program
contains storage and disposal instructions for multiple copies,
including non-paper media such as microfilm, diskettes, hard drive
files, and tapes.
This checklist takes into account most of the federal
and state regulations. State statutes on tax and payroll records vary
widely however. You should check with the tax commissioner of the states
in which you conduct business for further details. The normal statute of
limitations on federal returns is three years; under some circumstances
it is six years. If you fail to file a return, the statute of
limitations does not close. There may be additional legal
considerations, and it is advisable to consult local counsel before a
business retention program is put into effect. Details on IRS record
keeping requirements are available in Pub 552 and Pub 583.
Electronic Record Keeping
The rules for electronic record keeping are virtually the same as they
are for traditional records. Machine sensible books and records (data in
an electronic format intended for use by a computer) “must provide
sufficient information to support and verify entries on the taxpayer’s
tax return and to determine the correct tax liability. The taxpayer’s
machine-sensible records will meet this requirement only if they
reconcile with the taxpayer’s books and the taxpayer’s return. A
taxpayer establishes this reconciliation by demonstrating the
relationship (i.e., audit trail):
a) Between the total of the amounts in the taxpayer’s
machine-sensible records by account and the account totals in the
taxpayer’s books; and
b) Between the total of the amounts in the taxpayer’s
machine-sensible records by account and the taxpayer’s return.”[1]
Sometimes these records need to be augmented by with
other paper records such as contracts, price lists, or price changes.
The records must be capable of being processed.
Therefore, the records should be checked annually and each time systems
are upgraded in order to verify that they are still useful. In the event
they are stored in an old format (5 ¼” disks for example) the record
should be copied onto new media.
Essentially any combination of computer and paper
records is sufficient as long as the records can be accessed and
understood. All files should be labeled clearly and stored in a safe
environment.
Remember, organization is the key to all filing
systems. The below time periods are the minimum requirements and should
go into effect at the expiration of the document.
Permanent Records
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Articles of Incorporation
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Audit reports
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Capital stock and bond records: Ledgers,
transfer registers, certificates, record of interest coupons,
options.
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Cash books
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Chart of accounts
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Checks for important payments: Taxes,
purchases of property, special contracts, etc. Checks should be
filed with the papers pertaining to the underlying transactions.
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Contracts, notes, and leases still in effect
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Correspondence (legal and important matters only)
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Deeds, mortgages, and bills of sale
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Depreciation schedules
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Financial statements (year-end)
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General/private ledgers, year-end trial balances
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Insurance records, current accident reports, claims
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Journals
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Minute books of directors, stockholders, bylaws, and
charter
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Patents and related papers
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Property appraisals by outside appraisers
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Property records, including costs, depreciation
reserves year-end trial balances, depreciation schedules,
blueprints, and plans
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Retirement and pension records
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Tax returns and worksheets, revenue agent’s
reports, and other documents relating to determination of income tax
liability
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Trademark registrations and copyrights
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Training manuals
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Union agreements
7-year records
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Accident reports/claims (settled cases)
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Accounts payable ledgers and schedules
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Accounts receivable ledgers and schedules
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Automobile logs
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Bank statements
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Checks (ordinary cancelled checks)
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Contracts, mortgages, notes, and leases (expired)
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Expense analyses/distribution schedules
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Garnishments
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Notes receivable ledgers and schedules
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Option records (expired)
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Invoices (to customers, from vendors)
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Payroll records and summaries
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Personnel files (terminated)
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Plant cost ledgers
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Purchase orders (purchasing department copy)
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Sales records
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Scrap and salvage records (inventories, sales, etc.)
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Stock and bond certificates (cancelled)
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Subsidiary ledgers
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Time books/cards
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Voucher register and schedules
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Vouchers for payment to vendors, employees
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Withholding tax statements
3-year records
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Bank reconciliation's and duplicate deposit slips
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Employment applications (for those not hired)
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Insurance policies (expired)
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Internal audit reports (longer may be desirable)
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Inventories of product, materials, and supplies
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Sales commissions reports
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Petty cash vouchers
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Physical inventory tags
1-year records
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Purchase orders (except purchasing department copy)
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Receiving sheets
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Requisitions
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Stenographer’s notebooks
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Stockroom withdrawal forms
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[1] IRS Rev. Proc. 98-25, 1998-11 I.R.B. 7(3/16/98) Sec 5.Retaining
Machine Sensible Records .01General(2)
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