Tax & Accounting

Record Retention Guidelines

Different for every business and person
Legal requirements
Individual needs
Business needs vary
Sarbanes Oxley?

Cautionary Note Regarding Sarbanes-Oxley

The Sarbanes-Oxley Act of 2002 created record retention requirements that apply to all companies, whether or not publicly traded. For example, Section 802 provides that it is a crime for someone to intentionally destroy, alter, mutilate, conceal, cover up or falsify any records, documents or tangible objects that are involved in (or could be involved in) a U.S. government investigation or prosecution of any matter or in a Chapter 11 bankruptcy filing.

Section 1102 expanded the existing statute regarding obstruction of justice to make it a crime to corruptly alter or destroy a record, document or other object, “with the intent to impair the object’s integrity or availability for the use in an official proceeding.”

The penalty for violating either Section 802 or Section 1102 is a fine, imprisonment for not more than 20 years or both. These sections apply not only to hard copies of all documents but also to e-mail, voice mail, PDAs and other forms of electronic hardware and software. Therefore, it is recommended that record retention policies specifically refer to these types of tools.

Your company's record retention policy should provide that the (otherwise permissible) destruction of a document or documents cease immediately upon any indication of impropriety or threat of a federal investigation or proceeding. You should also have a procedure in place to notify all employees promptly of the existence of any such event. It is also recommended that you have a “point person” to field questions from employees and to communicate specific requirements and instruction, including, when necessary, the instruction to cease destruction of documents.

Accounting Records

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Auditors’ report and annual financial statements - Permanent
Bank reconciliations - 7 years
Bank statements and deposit slips - 7 years
Budgets - 2 years
Cancelled checks (general, payroll, payroll-related taxes) - 7 years
Cancelled checks (fixed assets and income taxes) - Permanent
Cash disbursements journal - Permanent
Cash receipts journal - Permanent
Correspondence - 3 years
Currency transactions reports - 5 years
Dividend checks - Permanent
Employee expense records - 7 years
Fixed assets records (invoices, depreciation schedules) - Permanent
Financial statements (annual) - Permanent
Freight bills - 4 years
General ledgers and year-end trail balances -Permanent
Inventory records - 7 years
Open accounts (MI) - 6 years
Petty cash vouchers - 4 years
Production and sales reports - 7 years
Promissory notes (MI) - 6-10 years
Purchase journals - Permanent
Purchase orders - 7 years
Subsidiary ledgers (accounts receivable, accounts payable, etc.) - 7 years

Administrative and Corporate Records

Annual reports 6 years
Articles of incorporation (and any amendments) Permanent
Ballots and proxies 6 years
Buy-sell agreements Permanent
By-laws Permanent
Capitol stock and bond records Permanent
Contracts and leases (after expiration) 7 years
Copyright and trademark records Permanent
Dividend registers Permanent
Government contracts and subcontracts At least 3 years
Insurance records, policies, etc. Permanent
Legal correspondence Permanent
Liquidation of subsidiaries records Permanent
Mergers and combinations records (antitrust) Permanent
Minutes Permanent
Mortgages and notes (after expiration) 6 years
Oral contracts memorandum (MI) 6 years
Patents and patent licenses 26 years
Partnership agreements Permanent
Real estate title documents (MI) 15 years
Reorganization records Permanent
Securities offer or sales records Permanent
Stock certificates and ledgers Permanent
Union (labor) contracts Permanent

Personnel Records

§6047(b) trust or retirement plan contribution Until distributed
Collective bargaining agreements 6 years
Employment application (from date of termination) 3 years
Employee files (current employees)
Employee files (after termination) 7 years
Employee manuals/handbooks Permanent
FICA records 4 years
FMLA documents 3 years
Form I-9 Employment Eligibility Verification (after date of hire) 3 years
H-1B labor conditions application public access file 1 year after expiration
Paychecks, W-2 Forms, W-4 Forms, 1099 Forms 7 years
Payroll records 7 years
Preparer information 3 years
Time cards and daily time reports 4 years
Unemployment insurance (MI) 6 years
Wage and hour records 5 years
Workers’ compensation (MI) 2 years

Employee Benefit Plans

Documents filed subject to Labor-Management Reporting and Disclosure Act of 1959 5 years
ERISA plan documents 6 years
Pension/profit-sharing informational returns (Form 5500) Permanent
Plan and trust agreements Permanent
IRS approval letter Permanent
Actuarial reports Permanent

Tax Records

Business income tax 6 years
Cigarette and tobacco tax 4 years
Employment security tax 4 years
Federal income tax 6 years
Financial reports (annual) Permanent
Financial statements 4 years
Payroll tax returns Permanent
Sales and use tax Permanent

Individual Records

Tax returns, W-2, 1099 (after filing) 6 years
Loan records (after payoff) 6 years
Medical bills (after payment) 6 years
Insurance policies (after expiration) 6 years
IRA records (after termination) 6 years
Major purchase receipts 6 years
Schedule K-1 (after disposition of interest) 6 years

Internal Revenue Code

Under the Internal Revenue Code, the following records are subject to the “materially” rule for determining retention time. The general requirement is that records must be kept as long as the contents may become material in the administration of any internal revenue law. Consult with legal counsel for suggested retention periods:

Employer accident and health records

Pension, annuity, stock bonus, profit sharing records or other plans of deferred compensation

Supplemental unemployment benefit trust records

Travel, transportation, entertainment and other business expense records

Records of depreciation of property

Records of property held for the production of income

Inventory records

Records of expenditures through trademarks and tradenames treated as deferred expenses

Records of intercompany transactions between members and an affiliated group

Records of deductions for dividends paid (including cancelled dividend checks and receipts from shareholders acknowledging a payment) — all recommended to be kept indefinitely

DISC corporation records sufficient to establish details of transactions

Records relating to corporate organization and reorganization

Transfer of property to the corporation controlled by the transferor

Permanent records of tax treatment of corporate reorganizations

Records pertaining to §1244 stock shareholders and S corporation shareholders

Reports required under the Tax Equity and Fiscal Responsibilities Act (TEFRA), including brokers reports, state refunds, trade or business payments and tip income

Records sufficient to establish the details of the required pension withholding under TEFRA

Records relating to property for which basis must be determined to compute gain or loss upon disposition, depreciation, amortization or depletion — should be retained at least until a taxable disposition is made

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