Posted by Art_MD on 1/5/06 1:20pm
Msg #86287

going paperless

Does anyone know if scanned records are acceptable if the IRS does an audit? Or, are paper originals still required?

Art

Reply by Jersey_Boy on 1/5/06 1:35pm
Msg #86292

I don't know the exact IRS answer, but I look at it this way....

When you get your bank statement in the mail each month, are you getting your physical check back, or a scanned copy of the check? I don't know of any banks sending back original checks, you just get a scanned copy. If the IRS will accept this scanned copy of the original item as proof of payment, why wouldn't they accept a scanned copy of your records?

Reply by PAW_Fl on 1/5/06 1:54pm
Msg #86298

Check images is not the same

By federal statute, "Check 21" was enacted that allowed for the imaging of checks rather than maintaining the paper source. "Check 21" also makes the image acceptable as proof positive in place of the paper check. However, "Check 21" does not extend to receipts, invoices, etc. I don't know what the IRS official position is on image files, such as PDF files or any computer files, as they are fairly easily manipulated. Even with the "Check 21" images, there is still a paper trail required by the banks.

Reply by CarolynCO on 1/5/06 1:51pm
Msg #86296

Re: Backups a must!

Art,
If you do decide to go completely paperless, i.e., scanning, I'd make darn sure that you had at least TWO backups on CDs, DVD, or diskettes. Hard drives can crash at any time and without any warning.

Reply by Art_MD on 1/5/06 2:05pm
Msg #86301

Re: Backups a must!

Boy do I backup !!!

My daughter, a extremely savy computer person (specialty = Military counterintelligence --- computer forensics), has set me up with external DVD writer, zip drives, memory sticks etc. Probably have 3 copies of everything.
Reason I asked is any computer file can be changed/edited and was wonder what the IRS stand was re: digital records.

FYI - Most law enforcement agencies do not take only digital photos. Some courts have throw out digital evidence because it can be edited so easily and leaves no evidence that it was edited.

Art

Reply by Gerry_VT on 1/5/06 3:41pm
Msg #86336

Re: Backups a must!

Art_MD wrote "Reason I asked is any computer file can be changed/edited and was wonder what the IRS stand was re: digital records."

Ordinary computer files can be altered. For that matter, many paper records can be altered. However, if a computer file has been signed with public key cryptography, and a digital time stamp (available through the U S Postal Service, among others) applied, the file is much more difficult to alter without detection than most paper documents.

However, I don't know anything about what the IRS will accept (and I hope to remain ignorant).

Reply by CrystalT_FL on 1/7/06 8:51am
Msg #86837

The IRS says that electronic storage of records is acceptable if the requirements of "Revenue Procedure 81-46, in Cumulative Bulletin 1981-2" are met. I dont have a subscription so I cant quote that. Many CPA's that I have done bookkeeping for however feel comfortable keeping only scanned images - again, no legal advice from me!

The tricky part is to have an orderly system for retreival if you have to print out a document. In an audit with paper records, you never just give the guy all of your stuff - he asks to see something, you make him be very specific, and you give him only that paper. The same would be true for electronically stored documents - you are the one retrieving a copy from the CD and printing it out. Use file names that you can easily recognize, and organize them in folders. For example, all of the electric bills in one folder, ie "Electric2005" and each file name like "elec0105, elec0205" You get the point. Something not only YOU can handle, but logical enough for a trusted employee/relative/CPA to figure out as well.

HTH!