The storing of files can be a tricky topic, especially when you are worried about a potential audit from the Internal Revenue Agency (IRS).
Earlier this month, we released a blog post regarding the filing of scanned documents in preparation for a Canadian audit. Today, we will take a look at the IRS’s rules and regulations, and how you can properly prepare your scanned documents in the event of an audit. It is important to note that the IRS has strict guidelines for the use of electronic storage systems for your scanned documents.
What records are required?
- The law requires you to retain records for so long as the contents thereof are material in the administration of any internal revenue law.
- Material records should be kept for 3 years from the return date
- All records of Employment must be held for at least 4 years
What electronic sources are recognized?Electronic records are recognized so long as the software program you choose meets these basic record keeping principles mentioned on the IRS web page:
“The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. The original hard copy books and records may be destroyed provided that the electronic storage system has been tested to establish that the hard copy books and records are being reproduced in compliance with IRS requirements for an electronic storage system and procedures are established to ensure continued compliance with all applicable rules and regulations. ”
Basically, the IRS is saying that information must be easily accessible, accurate, and complete, as well as meeting the IRS requirements for an electronic storage system. For more information, you can see the full IRS Publication. If you are unsure about the status of your electronic records, you should contact an accountant to ensure that your software program is compatible with the IRS’s guidelines.
Why digitize your information?
As you can see, the IRS has laid out a series of ground rules for the use of electronic storage systems. The filing system must adequately index, store, preserve, retrieve, and reproduce information in a format that is easily accessed and legible.
Online storage systems are a great way to reduce paper, while increasing time and efficiency. Many systems allow users to upload, file, and retrieve documents to improve efficiency and work flow. You also have the ability to add notes and share information in an easy and time effective manner.
LedgerDocs is a simple document management system designed for the collaboration between bookkeepers, accountants and businesses. We offer a simple process of storing, preserving and retrieving your information in a secure and organized manner that is in line with the IRS guidelines. LedgerDocs also offers an Audit Trail, which is a standard feature for our users.
Try LedgerDocs risk free 14 day trial today!