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Records Retention Guide for Clients

Rödl & Partner Tax Matters Vol 2019 - 5, published in July 2019

Document retention is a topic which has received increased discussion and analysis through the years. Articles have been written urging companies to adopt a written retention policy to which its employees are required to adhere. The purpose of this guide is to provide a sample retention policy and sample schedule of retention periods. Individual state requirements are not considered. Companies should obtain the necessary counsel to ensure that local and state jurisdiction regulatory requirements are met. Not only should companies consider the state in which they reside, but states where significant operations exist.

POLICY SHOULD INCLUDE ALL DOCUMENTS

Historically, paper files were the primary means of documentation. Now electronic documents in the form of files, work papers, emails and final work products are maintained in digital format. Today, most companies have a combination of paper and electronic documents.

Document retention policies should include all documents, whether paper or electronic, and companies should adhere to these policies in a systematic manner. Whatever the policy may be, it should be carried out consistently, both in the retention of documents and the discarding of documents no longer required to be kept.

Computer users must be aware of the ease with which email, voice mail, and all electronic messages can become public. Even though a company may regularly purge its email, the people who have received e-mails may keep them forever. No message, whether in writing or electronic format, should contain any words or language the sender would not want to read on the front page of the local newspaper or to hear repeated in court.

INTERNAL REVENUE SERVICE REQUIREMENTS

An important part of an overall document retention policy is compliance with Internal Revenue Service requirements, since all taxpayers are required to keep books and records sufficient to establish the amount of gross income, deductions, credits, or other matters required to be shown by the taxpayer in a tax return.

For federal income tax purposes, books and records are required to be retained so long as the contents may become material in the administration of the tax laws, although “material” is not defined. For practitioners this generally means information relied on in the preparation of the clients’ returns. The books and records must be retained, at a minimum, until the expiration of the statute of limitations, including extensions, for each tax year.

The IRS has issued guidance with respect to computer document retention and electronic document storage, applicable to both business and individual taxpayers whose tax records are computerized or electronically stored.

RECORDS RETENTION PERIODS

The following suggested retention periods where derived in part from the AICPA’s Tax Practice Improvement Committee Working Group record retention guidelines and IRS Publications and Regulations. They can be used in developing your own record retention policy. However, they do not contain all potential records that may need to be maintained. In addition, there may be certain specific industry record retention requirements which companies should also follow.

If you have any questions, please contact your Rödl & Partner representative.

This publication contains general information and is not intended to be comprehensive or to provide legal, tax or other professional advice or services. This publication is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Consult your advisor.

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Any tax and/or accounting advice contained herein is based on our understanding of the facts, assumptions we have been asked to make, and on the tax laws and/or accounting principles in effect as of the date of this advice. No assurance is given that the conclusions would be the same if the facts or assumptions change, or are not as we understand them, or that the tax laws and/or accounting principles will not change subsequent to the issuance of these conclusions. In addition, we do not undertake any continuing obligation to advise on future changes in the tax laws and/or accounting principles, or of the impact on the conclusions herein.

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