Use of Electronic Media for Saving Tax & Business Records

Electronic recordkeeping mediaConsidering the use of Electronic Media for Saving Tax & Business Records?

Whether you are starting a new business – or have an established business – you might be looking at how to improve your record keeping practices.

If you have considered the use of electronic media for saving tax & business records you will also want to be sure you are in compliance with the IRS rules and regulations for electronic storage systems.

Currently, there are various types of storage medias available , and before you determine which digital media will meet your long-term legal and operational needs, familiarize yourself with the Electronic Records Management Guidelines.  Legally, your records must be trustworthy, complete, accessible by the IRS, legally admissible in court, and durable for as long as you need them.  The IRS has also discussed this in length in their Publication 583, and IRS Revenue Procedure 98-25.

  • Digital Media
  • Magnetic Media
  • Optical Media
  • Solid State Media
  • Digital Media Capacity
  • Media Life Expectancy
  • Care and Handling of Digital Media
  • Storage Options
  • Performance Issues

IF YOU CHOOSE ELECTRONIC MEDIA FOR RECORDKEEPING…

You will need meet all the requirements that apply to hard copy books and records.  What does that mean?  When you replace hard copy books and records – you still have to maintain the electronic storage systems for as long as they are material to the administration of tax law.  An electronic storage system is any system that is used for preparing or keeping your records – either by imaging (scanning) or transfer to an electronic storage media (receipts, etc.)

The system(s) must: index, store, preserve, retrieve and reproduce the electronically stored books and records in a legible format acceptable to the IRS.  All electronic storage systems must provide complete and accurate record of your data that is accessible to the IRS.  They are also subject to the same controls and retention guidelines as for hard copy books and records.

Also, you can only discard/destroy your hard copy books and records if the storage system has been tested to establish that the recordkeeping is being reproduced – electronically – in compliance with the IRS requirements for electronic storage, and procedures have been established to ensure continued compliance with all rules and regulations. You still have the responsibility to retain any other books and records that are required by law, to be retained.  Please see How Long Should I Keep Records?

The IRS may test your electronic storage system – including the equipment used, methodology, software and retrieval capabilities.  This test is not considered an examination, and the results must be shared with you.

If your electronic storage system meets the requirements – you will be in compliance.  HOWEVER – if they don’t, you may be subject to penalties for non-compliance, unless you continue to keep your original hard copy of books and records in manner that allows you and the IRS to determine your correct tax.

For more information on electronic storage and documentation management, please refer to IRS Publication 583 beginning on page 11.

Images: Bing