The Law and Records -- Rarely the Twain Shall Meet.

The relationship between law and records retention ought to be straightforward: The government requires you to make and save records, so you make and save them. If all goes right, the records made and saved are exactly what was expected. Unfortunately, the ideal situation is often not what we see in the real world.

Sometimes the ideal situation described above is exactly what happens. For example, the Mine Safety and Health Administration (MSHA) Form 5000-23 that employers fill out to document mine-related safety training states:

   Upon a miner's completion of each MSHA approved training program, the
   operator shall record and certify on MSHA form 5000-23 that the miner has
   received the specified training. A copy of the training certificate shall
   be given to the miner at the completion of the training. The training
   certificates for each miner shall be available at the mine site for
   inspection by MSHA and for examination by the miners, the miner's
   representative, and State inspection agencies. When a miner leaves the
   operator's employ, the miner shall be entitled to a copy of his training
   certificates.(1)

There is no ambiguity at all in the requirements associated with this document: Employers who operate in the mining industry must train miners, complete this form, and maintain it for two years as specified in the law's other sections.

Form 500-23 completely satisfies the information retention requirement for the training in question. If you have properly completed current 500-23s for all miners, there is no question at all whether you ought to be retaining something else to document that the training occurred. There is a one-to-one correspondence between the law and the record, which satisfies it. If you have met the requirement, your employees may sue you or the economy may collapse, but in this one thing, you may be confident of having overcome all hurdles -- you are safe.

Problem 1 -- Ambiguous Laws

Other times, however, things are not so simple. Consider:

(a) In general. Except as provided in paragraph (b) of this section, any person subject to tax under subtitle A of the Code (including a qualified State individual income tax which is treated pursuant to section 6361(a) as if it were imposed by chapter 1 of subtitle A), or any person required to file a return of information with respect to income, shall keep such permanent books of account or records, including inventories, as are sufficient to establish the amount of gross income, deductions, credits, or other matters required to be shown by such person in any return of such tax or information.

(b) Farmers and wage-earners. Individuals deriving gross income from the business of farming, and individuals whose gross income includes salaries, wages, or similar compensation for personal services rendered, are required with respect to such income to keep such records as will enable the district director to determine the correct amount of income subject to the tax. It is not necessary, however, that with respect to such income individuals keep the books of account or records required by paragraph (a) of this section. For rules with respect to the records to be kept in substantiation of traveling and other business expenses of employees, see Sec. 1.162-17.(2)

This requirement is very different from the first example. There is neither a prescribed form or format for the records nor precise detail on what is needed. Apparently, so long as it is "sufficient to establish the amount of gross income," anything will do -- or will it?

When the time comes to consolidate records and keep only what is necessary for tax compliance, taxpayers faced with requirements of this sort, of which there are many, are often reluctant to purge anything. The concern is that the Internal Revenue Service (IRS) may determine that what remains is insufficient. The lack of a hard and fast rule creates uncertainty rather than flexibility, which in turn fosters a keep-it-just-in-case mentality. The net result is creation and retention of unnecessary records and continuing uncertainty as to whether even these are enough to satisfy the law.

Problem 2 -- Laws and Records That Do Not Match

Another category of law creates a different problem. Consider:

   Every employer shall keep a time book showing the names and addresses of
   his employees and the hours worked by each of them in each day.(3)

Taken literally, this provision seems to require a bound book with written entries; it conjures a picture of Bob Cratchit, hunched over his desk, scratching away with a quill pen. In some respects, the image is not entirely wrong. Many laws have been in force for years without revision, and the recordkeeping they contemplate is indeed that of bound books and handwritten entries.

Times have changed, however. Most businesses have long since moved to electronic payroll systems. This poses a question: Does this law literally require the maintenance of a written time book, or do computer databases suffice?

The Overall Issue: Laws That Don't Adequately Address the Issues

The previous examples typify a common records management problem. The law expects you to create and maintain records, then is either unclear about exactly what to create or maintain or else describes objects that do not correspond to anything actually created and maintained in the real world. How do you deal with this situation? Are you condemned to live with uncertainty, not knowing what to keep, what to dispose of, and what not to create in the first place? Fortunately, there are ways to resolve the issue.

Surrounding Provisions

Records retention laws generally appear among a series of provisions controlling other aspects of the law's subject matter. Those other provisions often contain language clarifying the information retention requirement, setting forth examples or containing additional records retention provisions. When looked at in totality, these surrounding provisions often combine with the explicit records retention provision to give a clearer picture of what is really required. The tax example related above illustrates this. Although the provision quoted is quite vague, it is part of an income tax regulation scheme in which various deductions and exemptions are detailed, including many examples of particular transactions, specific records that must be kept, and so on. The reading is long and tedious, but a close examination of the law containing the quoted provision provides many details of exactly what the IRS expects of taxpayer recordkeeping.

Other regulatory schemes operate similarly. Even if they do not include examples, they may still give considerable guidance by discussing the exact behavioral goals required. If your records are sufficient to prove you acted in the desired manner, they are probably sufficient to satisfy the law in the absence of an explicit recordkeeping requirement.

Exemplifying Regulations

A vague statute often has a corresponding set of regulations that details its overall scheme. Many federal laws follow this model: a statute creates an overall scheme, places an agency in charge, and leaves the details, including recordkeeping, to the agency. Many federal agencies promulgate very precise, very detailed records retention regimes under schemes of this sort. The U.S. Environmental Protection Agency's air quality regulations illustrate this. Although they impose no particular form or format requirements, they state in great detail exactly what types of records must be created and maintained, the frequency with which the monitoring and associated recordkeeping must be performed, the precise information required to be captured on any record, and so on. There is little or no ambiguity.

In theory, the clarification-by-regulation model holds true on a state level. Unfortunately, state agencies sometimes do not promulgate implementing regulations, or they simply restate the vague statutory provision, thereby shedding no light on the matter. Fortunately, other means exist for helping to solve the problem.

Intent

Every regulatory law is intended to accomplish some goal: keep the environment clean, ensure employees are properly paid, collect taxes, and so forth. In the case of the time book law above, the cited provision is part of an overall wage and hour scheme designed to ensure that employees are paid at least the minimum wage and are paid overtime for work beyond 40 hours each week. Therefore, from a records management standpoint, the question is whether the records created and maintained are sufficient to show hours worked per week and wages paid. If they are, then both the regulating agency and a court are likely to consider those records equivalent to a "time book" for the purposes of enforcing the scheme.

Case Decisions

If a law is vague or unrealistic about an information retention requirement, you are probably not the first party to have had difficulties with it. Courts are frequently called upon to interpret (or "construe" in legal vernacular), and construing a "time book" provision in light of modern technology is precisely the sort of thing that would be litigated. Research might turn up a case answering whether a computerized payroll system is a "time book" for the purposes of enforcing state wage and hour laws. The answer might go either way, but if the case exists, at least a definitive answer would be there.

Agency Guidance

Many agencies issue formal guidance on implementing and obeying the law. The IRS, for example, issues revenue procedures (general statements of its position on compliance), revenue rulings (compliance determinations based on specific taxpayer inquiry), and other items that help clarify its position on many issues. These often go considerably beyond the scope of formal regulations. In the area of electronic records, for example, the IRS has issued and updated a long series of revenue procedures clarifying its position on the use of electronic records for tax compliance. The revenue procedures give far greater detail than anything contained in the IRS's formal regulations.

Other agencies have similar systems. The Securities and Exchange Commission publishes no-action letters, similar in scope and intent to IRS revenue procedures. Other agencies afford similar guidance through lists of frequently asked questions, which are often found in their regulations. In many cases, the detail lacking in the regulation is found in such places.

The previous are formally published and can therefore be researched in the usual manner. Useful material can be incorporated into schedules and policies in the same manner as other legal authority.

Many agencies also give informal guidance. If all else fails, an informal query of the agency may provide clarifying information. A caveat is in order here, however: Agencies frequently do not regard themselves as bound by such informal advice. Therefore they could, in theory, give advice and then institute a regulatory action for an alleged violation even though that advice had been followed. In addition, agencies occasionally give informal advice that conflicts with -- or, more typically, is more restrictive than -- the statutes and regulations actually in force. The formal law controls in such cases, but you might find yourself in a disagreement with the agency if you so observe.

Conclusion

When faced with a confusing information management law, there are often additional resources available to clarify the situation. Although they require additional research and are not foolproof, often they provide the information needed to resolve the ambiguity and move forward. The time spent in researching them is often well spent, giving a large reward in certainty, efficiency, and well being.

ENDNOTES

(1.) 30 CFR 48.9, Training and Retraining of Underground Miners, Records of Training.

(2.) 26 CFR 1.6001-1. Records.

(3.) Consolidated Laws of New York, Labor Law Sec. 161 (4).

John C. Montana, J.D., is an attorney and records management consultant based in Landenburg, Pennsylvania. He may be reached at johnmontana @qwestinternet.net