10 February 2010

Hey, I Might be Wrong, but...

"The IRS officially accepts all scanned copies of receipts and bank statements."

~a blog that deleted my concern.

I read this type of advice all the time. Especially around this time of year. And here's the thing... it makes me uncomfortable.

I asked, very nicely I might add, the above blogger for the source of this quote. Because, I would actually like to start recommending it myself. They did not reply. They deleted my comment. Here's the thing,

It is not because I designed a filing system for paper. Really.
I am all about making things easier, more efficient and less clutter. If scanning and storing is easier and more efficient for you, go for it. There's more than one right way to get anything done.

The reason it really bothers me is because, I am pretty sure it isn't true. The only reason you have to save any records is to prove yourself to the IRS or support insurance claims and ownership. Although I have not received a definitive yes or no from the IRS, I have done a bit of research on the matter.

Receipts you receive digitally, yes. Paper receipts. No. A scan can be easily modified. IRS Publication 552 states, "In addition to your computerized records, you must keep proof of payment, receipts, and other documents to prove the amounts shown on your tax return."

Open to interpretation, don't you think?

That statement concerned me so, I contacted all 50 state tax advocates offices a few years back, only a handful were comfortable saying scanned receipts were acceptable. By a handful I mean, around 3.

I also contacted the IRS directly. You don't get much directly from them, they refer you back to the publications, but most IRS folks I spoke with said scans were not acceptable.

Whatever.

Enough of that. I just had to voice my concern. I read this recommendation everywhere and IMHO it might not be the best practice. It would be really, really nice if the IRS would clarify this. I'm ok being wrong.


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UPDATE.

So I have done some more research on the matter. It seems the IRS updated Publication 552. The update is much more specific regarding digital records and it referenced, Rev. Proc. 97-22 where it states,

SECTION 4. ELECTRONIC STORAGE SYSTEM REQUIREMENTS
.01 General Requirements.

(1) An electronic storage system must ensure an accurate and complete transfer of the hardcopy or computerized books and records to an electronic storage media. The electronic storage system must also index, store, preserve, retrieve, and reproduce the electronically stored books and records.

(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.

(3) All books and records reproduced by the electronic storage system must exhibit a high degree of legibility and readability when displayed on a video display terminal and when reproduced in hardcopy. The term “legibility” means the observer must be able to identify all letters and numerals positively and quickly to the exclusion of all other letters or numerals. The term “readability” means that the observer must be able to recognize a group of letters or numerals as words or complete numbers. The taxpayer must ensure that the reproduction process maintains the legibility and readability of the electronically stored document.

(4) The information maintained in an electronic storage system must provide support for the taxpayer’s books and records (including books and records in an automated data processing system). For example, the information maintained in an electronic storage system and the taxpayer’s books and records must be cross-referenced in a manner that provides an audit trail between the general ledger and the source document(s).

(5) For each electronic storage system used, the taxpayer must maintain, and make available to the Service upon request, complete descriptions of:
(a) the electronic storage system, including all procedures relating to its use; and
(b) the indexing system (see section 4.02 of this revenue procedure).

(6) At the time of an examination, or for the tests described in section 5 of this revenue procedure, the taxpayer must:
(a) retrieve and reproduce (including hardcopies if requested) electronically stored books and records; and
(b) provide the Service with the resources ( e.g., appropriate hardware and software, personnel, documentation,
etc.) necessary to locate, retrieve, read, and reproduce (including hardcopies) any electronically stored
books and records.

(7) An electronic storage system must not be subject, in whole or in part, to any agreement (such as a contract or license) that would limit or restrict the Service’s access to and use of the electronic storage system on the taxpayer’s premises (or any other place where the electronic storage system is maintained), including personnel,
hardware, software, files, indexes, and software documentation.

(8) The taxpayer must retain electronically stored books and records so long as their contents may become material in the administration of the Internal Revenue laws under §1.6001-1(e).

(9) The taxpayer may use more than one electronic storage system. In that event, each electronic storage system must meet the requirements of this revenue procedure. Electronically stored books and records that are contained in an electronic storage system with respect to which the taxpayer ceases to maintain the hardware
and the software necessary to satisfy the conditions of this revenue procedure will be deemed destroyed by the taxpayer, unless the electronically stored books and records remain available to the Service in conformity with this revenue procedure.

(10) Taxpayers may use reasonable data compression or formatting technologies as part of their electronic storage system so long as the requirements of this revenue procedure are satisfied.

.02 Requirements of an Indexing System.
(1) For purposes of this revenue procedure, an “indexing system” is a system that permits the identification and retrieval for viewing or reproducing of relevant books and records maintained in an electronic storage system. For example, an indexing system might consist of assigning each electronically stored document a unique identification number and maintaining a separate database that contains descriptions of all electronically stored books and records along with their identification numbers. In addition, any system used to maintain, organize,or coordinate multiple electronic storage systems is treated as an indexing system under this revenue procedure.
The requirement to maintain an indexing system will be satisfied if the indexing system is functionally comparable to a reasonable hardcopy filing system. The requirement to maintain an indexing system does not require that a separate electronically stored books and records description database be maintained if comparable
results can be achieved without a separate description database.

(2) Reasonable controls must be undertaken to protect the indexing system against the unauthorized creation of, addition to, alteration of, deletion of, or deterioration of any entries.


So, scan away... if you have the right scanner with integrated software with reasonable controls to prevent and detect the unauthorized creation of, addition to, alteration of, deletion of, or deterioration of electronically stored books and records. But, I wouldn't be so quick to use any basic old scanner.

1 comment:

Miss Madison's Mommy said...

Just another reason we should be careful believing what we read on the internet!

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