March 2003

IRS Record-Keeping Requirements for Electronically Filed Income Tax Returns

Camico has received calls from CPA policyholders who prepare and file some of their clients’ individual income tax returns electronically. One of the questions they often have is, “What records do I need to maintain in order to comply with the IRS’s record retention policy?”

Revenue Procedure 2000-31 sets forth the obligations of On-Line Filing Program participants. Revenue Procedure 2000-31 refers taxpayers to various IRS publications for guidance concerning what documents must be retained and for how long. These include Publications 1345, 1345A, 1346, 1436 and 3112.

The main publication discussing the record retention requirements of electronically filed individual income tax returns is Publication 1345. These requirements apply to an electronic return originator (ERO). An ERO is an authorized IRS e-file provider that originates the electronic submission of an income tax return that the provider has prepared or collected from a taxpayer to the IRS. The requirements are made up of the two simple components of: 1) the type of record that must be kept; and 2) the time period that the records must (or should) be kept.

An ERO must keep:

1) a copy of any signed Form 8453 U.S. Individual Income Tax Declaration for an IRS e-file return;
2) paper copies of Forms W-2, W-2G, 1099-R, along with any supporting documents that were not included in the electronic return data;
3) a copy of any signed IRS e-file consent to disclosure forms for taxpayers providing an electronic signature;
4) a complete copy of the electronic portion of the return, which can be immediately and accurately converted into a form that can be electronically transmitted and processed by the IRS; and
5) a copy of any acceptance file from the IRS (i.e., documentation that the IRS accepted the electronic portion of the taxpayer’s return) for a period that ceases at the end of the calendar year in which a return was filed. For example, if the tax return was filed on April 15, the records must be kept until Dec. 31 of the same year.

These records must be maintained at either the site from which the return was electronically transmitted or at the business address of the responsible official named on the application.

An ERO must keep any IRS e-file signature authorization documents for electronic signatures for a period of three years from the later of the due date or the IRS received date. These records must also be retained and made available to the IRS at either the site from which the return was electronically transmitted, or at the business address of the responsible official named on the application.

An ERO should keep copies of the IDs used to verify the taxpayers’ names, TINs, and current addresses. You are not required to keep this documentation, but the Service “strongly suggests” that you do. If you retain these records, they are to be kept until the last day of the calendar year in which the return was filed (Dec. 31).

Finally, if the ERO is also the paid preparer of the tax return, the ERO must retain all the normal records that an income tax preparer is required to keep (the same records kept with respect to non–electronically filed returns). See Regulations Section 1.6107-1(b) for the details.

Editor’s Note: The following information is provided by Camico Mutual Insurance Company, the New York State Society of CPAs’ liability insurance program.