Electronic Records

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Hi. I'm Becki and I work for the  Internal Revenue Service. Generally, if a small business taxpayer has assets of less than $10 million, they may retain paper records. But today, more taxpayers are going paperless and using accounting software to maintain their books and records electronically. Electronic records can include databases, saved files, email, instant messages, faxes and voice messages.

Keep in mind that, whether a taxpayer chooses to maintain paper or electronic records, the IRS must be able to trace transactions through the records to source documents. Businesses need to have the same good electronic recordkeeping habits as they do for paper records.

Taxpayers being audited can provide their electronic records on portable storage media — such as a CD, DVD, or flash drive (thumb drive) — to IRS examiners. These devices require little storage space and can save considerable time and effort for both the IRS examiner and the taxpayer. IRS examiners can also request electronic records from taxpayers, if that is how they maintain their books and records.

Taxpayers or authorized representatives should not email books, records or other tax information to IRS examiners. Our systems for managing tax data are secure, but where email is concerned, we all know there is a potential for something to get misdirected. We're working on technology that will allow secure transmission of documents, but we're not quite there yet.

It's important to note that the same timeframes that apply for keeping paper records apply to electronic records.Generally, that's until the statute of limitations for the tax return the records relate to has expired. It's normally three years from the due date of the return, or the date the return was filed - whichever is later.

There are some exceptions to this general rule: If the taxpayer acquired an asset or improved one, they should keep those records for at least three years past the tax year when they either disposed of or fully depreciated the asset.If the taxpayer had a net operating loss, they should keep the relevant records until the loss is fully used or expired.

The IRS has issued comprehensive guidance to taxpayers for maintaining their electronic books and records in Revenue Procedure 98-25.

For more information, please go to our website at irs.gov and type recordkeeping, electronic records or IRS audits in the search box.