Question about IRS and electronic documents

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Subject Author Date Question about IRS and electronic documents Snanny Jones 08-16-2009  Re: Question about IRS and electronic documents Bill 08-16-2009  Re: Question about IRS and electronic documents Snanny Jones 08-16-2009  Re: Question about IRS and electronic documents D. Stussy 08-16-2009  Re: Question about IRS and electronic documents HLunsford 08-18-2009  Re: Question about IRS and electronic documents HLunsford 08-18-2009  Re: Question about IRS and electronic documents Drew Edmundson 08-19-2009   Re: Question about IRS and electronic documents Steve Pope 08-19-2009  Re: Question about IRS and electronic documents Drew Edmundson 08-20-2009   Re: Question about IRS and electronic documents Steve Pope 08-20-2009  Re: Question about IRS and electronic documents Drew Edmundson 08-21-2009  Re: Question about IRS and electronic documents Dan Lanciani 08-21-2009  Re: Question about IRS and electronic documents Dan Lanciani 08-19-2009  Re: Question about IRS and electronic documents removeps-groups@yahoo.com 08-26-2009  Re: Question about IRS and electronic documents Drew Edmundson 08-27-2009  Re: Question about IRS and electronic documents Drew Edmundson 08-16-2009
Posted by HLunsford on August 18, 2009, 1:45 pm Please log in for more thread options Bill wrote: > snanny@verizon.net (Snanny Jones) posted: > >> Hi. I am curious about something and thought >> I'd ask it here. > >> If I'm audited, will the IRS accept PDF files >> and scanned receipts or do I still need to have >> paper copies? > >> My bank, credit card, and utilities all allow for >> electronic-only statements. I'd like to get rid of >> the clutter of paper documents entirely, or as >> much as possible. But it really depends on >> what the IRS allows. > >> I'm not in any danger of being audited >> because I've been unemployed for over a year >> and before that I just had one job that didn't >> pay a lot of money. > >> However, I just threw out a whole box of old >> receipts and statements that were very old >> and I'm hoping, from now on, that I can keep >> them electronically on my computer. > > One good clue is the fact that e-filing already > permits electronic filing of Schedule D-1 materials for those who are > active traders. > > But even if you're subjected to a "full field audit," unless they > discover gross misbehavior, there is little likelihood that they would > go back over your entire history; rather, they will be focusing on one > particular year. > > Certainly, pdf e-files will be acceptable. There are always printers, > if letter audits focus in on some specific item, you could print the > page(s) that support your filing(s). > Plus the fact that any auditor worth his salt will also want to see proof of payment, like cancelled check in which case the check to Capital One will match up with the statement. ChEAr$, Harlan Lunsford, EA n LA -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Drew Edmundson on August 19, 2009, 10:15 am Please log in for more thread options On Tue, 18 Aug 2009 13:45:09 EDT, HLunsford snip >> Certainly, pdf e-files will be acceptable. There are always printers, >> if letter audits focus in on some specific item, you could print the >> page(s) that support your filing(s). >> >Plus the fact that any auditor worth his salt will also want to see >proof of payment, like cancelled check in which case the check to >Capital One will match up with the statement. You need to read the Rev. Proc. I cited. If you don't follow the rules, the scanned file is not acceptable as proof. Most auditors will probably accept the scan anyway but what about the auditors that insist the rules be followed? >From Rev. Proc. 97-22: "(2) An electronic storage system must include: (a) reasonable controls to ensure the integrity, accuracy, and reliability of the electronic storage system; (b) reasonable controls to prevent and detect the unauthorized creation of, addition to, alteration of, deletion of, or deterioration of electronically stored books and records; (c) an inspection and quality assurance program evidenced by regular evaluations of the electronic storage system including periodic checks of electronically stored books and records; (d) a retrieval system that includes an indexing system (within the meaning of section 4.02 of this revenue procedure); and (e) the ability to reproduce legible and readable hardcopies (within the meaning of section 4.01(3) of this revenue procedure) of electronically stored books and records." I would hate to lose a deduction just because I was too lazy to read the rules and come up with a simple written plan that I then followed. I don't think following them is that hard for an individual. Item b might be as simple as "I will encrypt the folder(s) where I store my tax records. I will make a backup to an encrypted folder on a USB drive on a regular basis, at least monthly/annually that I will store in my fire proof safe/safe deposit box/home(if you keep records at your office)." Perhaps the procedure to comply with item c is written as: "I will count the pages to be scanned and compare the total to the number of pages in the PDF, TIFF, etc. I will page through the computer file to see that each page is legible." Item d could be as simple as: "I will scan receipts by tax year. Income will be stored in a subfolder called "income" and deductions will be stored in a subfolder called "deductions." Of course someone with a complex tax life would need a more detailed system. No guarantees that my off the cuff plan will work and it does not address the entire Rev. Proc. Drew Edmundson, CPA Cary, NC -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Steve Pope on August 19, 2009, 10:40 am Please log in for more thread options >> [attribution lost] wrote, >>> Certainly, pdf e-files will be acceptable. There are always printers, >>> if letter audits focus in on some specific item, you could print the >>> page(s) that support your filing(s). >>Plus the fact that any auditor worth his salt will also want to see >>proof of payment, like cancelled check in which case the check to >>Capital One will match up with the statement. >You need to read the Rev. Proc. I cited. If you don't follow >the rules, the scanned file is not acceptable as proof. Most >auditors will probably accept the scan anyway but what about >the auditors that insist the rules be followed? > >>From Rev. Proc. 97-22: > >"(2) An electronic storage system must include: >(a) reasonable controls to ensure the integrity, accuracy, >and reliability of the electronic storage system; >(b) reasonable controls to prevent and detect the >unauthorized creation of, addition to, alteration of, >deletion of, or deterioration of electronically stored books >and records; >(c) an inspection and quality assurance program evidenced by >regular evaluations of the electronic storage system >including periodic checks of electronically stored books and >records; >(d) a retrieval system that includes an indexing system >(within the meaning of section 4.02 of this revenue >procedure); and >(e) the ability to reproduce legible and readable hardcopies >(within the meaning of section 4.01(3) of this revenue >procedure) of electronically stored books and records." > >I would hate to lose a deduction just because I was too lazy >to read the rules and come up with a simple written plan >that I then followed. I don't think following them is that >hard for an individual. I believe the above applies to electronic systems of keeping records. If one instead has a paper system of keeping records, then that paper system can include paper documents that were once electronic but have been printed out. However, I would think printing them out contemperaneously is better than doing so right before an examination.... Steve >Item b might be as simple as "I will encrypt the folder(s) >where I store my tax records. I will make a backup to an >encrypted folder on a USB drive on a regular basis, at least >monthly/annually that I will store in my fire proof >safe/safe deposit box/home(if you keep records at your >office)." > >Perhaps the procedure to comply with item c is written as: >"I will count the pages to be scanned and compare the total >to the number of pages in the PDF, TIFF, etc. I will page >through the computer file to see that each page is legible." > >Item d could be as simple as: "I will scan receipts by tax >year. Income will be stored in a subfolder called "income" >and deductions will be stored in a subfolder called >"deductions." > >Of course someone with a complex tax life would need a more >detailed system. No guarantees that my off the cuff plan >will work and it does not address the entire Rev. Proc. > >Drew Edmundson, CPA >Cary, NC -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Drew Edmundson on August 20, 2009, 9:49 am Please log in for more thread options On Wed, 19 Aug 2009 10:40:14 EDT, spope33@speedymail.org (Steve Pope) wrote: snip >>>From Rev. Proc. 97-22: >> >>"(2) An electronic storage system must include: >>(a) reasonable controls to ensure the integrity, accuracy, >>and reliability of the electronic storage system; >>(b) reasonable controls to prevent and detect the >>unauthorized creation of, addition to, alteration of, >>deletion of, or deterioration of electronically stored books >>and records; >>(c) an inspection and quality assurance program evidenced by >>regular evaluations of the electronic storage system >>including periodic checks of electronically stored books and >>records; >>(d) a retrieval system that includes an indexing system >>(within the meaning of section 4.02 of this revenue >>procedure); and >>(e) the ability to reproduce legible and readable hardcopies >>(within the meaning of section 4.01(3) of this revenue >>procedure) of electronically stored books and records." >> >>I would hate to lose a deduction just because I was too lazy >>to read the rules and come up with a simple written plan >>that I then followed. I don't think following them is that >>hard for an individual. > >I believe the above applies to electronic systems of keeping >records. If one instead has a paper system of keeping >records, then that paper system can include paper documents >that were once electronic but have been printed out. > >However, I would think printing them out contemperaneously >is better than doing so right before an examination.... > >Steve >From the Rev. Proc.: "This revenue procedure provides guidance to taxpayers that maintain books and records by using an electronic storage system that either images their hardcopy (paper) books and records, or transfers their computerized books and records, to an electronic storage media, such as an optical disk." So it applies to paper documents that are scanned and to documents electronically generated. It is spot on to the OP question. Drew Edmundson, CPA Cary, NC -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Steve Pope on August 20, 2009, 1:49 pm Please log in for more thread options >On Wed, 19 Aug 2009 10:40:14 EDT, spope33@speedymail.org >(Steve Pope) wrote: [ From Rev. Proc. 97-22: ] >>I believe the above applies to electronic systems of keeping >>records. If one instead has a paper system of keeping >>records, then that paper system can include paper documents >>that were once electronic but have been printed out. >>However, I would think printing them out contemperaneously >>is better than doing so right before an examination.... >From the Rev. Proc.: >"This revenue procedure provides guidance to taxpayers that >maintain books and records by using an electronic storage >system that either images their hardcopy (paper) books and >records, or transfers their computerized books and records, >to an electronic storage media, such as an optical disk." >So it applies to paper documents that are scanned and to >documents electronically generated. It is spot on to the OP >question. I agree wholeheartedly that the above procedure applies to the OP's query as to whether he can keep records electronically, with no paper system involved. I was hypothesizing a different scenario, which was also alluded to in Dan Lanciani's post, in which the TP's recordkeeping system is a paper system, but some of the incoming documents are electronic. I believe that the above procedure does not apply in this case. As an extreme example, if one has a paper recordkeeing system, and purchases something at Office Depot, then the receipt is an electronic document that was printed out by a printer in the point of sale device. This does not invoke Proc 97-22, I am pretty sure. Pub 583 specifically treats the situations where there is no physical cancelled check, or no physical credit card receipt. These are discussed as being compatible with paper recordkeeping. It then later states that records maintained in an electronic system invoke 97-22. My belief is that electronic receipts printed out contemporaneously are not "maintained" electronically. If the mere existence of electronic-only cancelled checks requires 97-22 to be followed it would have been nice for the IRS to directly say this in their publication... Steve -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Similar Threads Posted Electronic payments October 4, 2008, 3:34 pm Electronic and Paper W4 December 4, 2008, 1:30 pm Electronic Filing via Turbotax March 3, 2009, 11:46 am Electronic Commerce and Multijurisdictional Taxation November 12, 2008, 11:08 pm Supporting Documents for determining FMV of Stocks? 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