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Record Retention Requirements Have IRS Playing a Game of Catch-Up.

The record retention requirements established by the Internal Revenue Service in Rev. Proc. 98-25, though well intentioned, are the product of a guidance process that lags behind technological advances in the business community, Tax Executives Institute said in June 18 comments the association for corporate tax professionals submitted to the IRS. The IRS procedure affects how long and in what format businesses must keep records of completed transactions. Failure to abide by the procedure could result in audit adjustments.

"We commend the IRS for issuing Rev. Proc. 98-25 to update the guidance in respect of machine-sensible records," TEI said. "The procedure relaxes some of Rev. Proc. 91-59's more restrictive features and addresses new developments in ADP systems. Nonetheless, Rev. Proc. 98-25 fails to discuss important issues that should be addressed and, regrettably, retains some stringent requirements from Rev. Proc. 91-59 that are unnecessary to safeguard the IRS's access to books and records.... Equally important, we do not believe this revenue procedure adequately reflects the IRS's new Mission Statement to provide service `by helping [taxpayers] understand and meet their responsibilities and by applying the tax law with integrity and fairness to all.'"

Many of the automated data processing systems that the procedure addresses have already been replaced by more comprehensive and integrated enterprise resource planning software and hardware systems. "The lag in guidance on ADP systems frustrates taxpayers and the IRS alike in their mutual desire to promote an efficient examination process," TEI said. One possible solution to the problem, the Institute said in its comments, would be for the IRS to adopt a goal of issuing a revised revenue procedure every other year that addresses ADP systems and electronic record retention requirements, rather than once every six or eight years. "The momentum of technological change affecting system hardware, software, and other record retention technologies and the increasingly competitive environment in which most businesses operate challenges taxpayers to run harder and faster just to keep pace. Indeed, two or more generations of some technologies have been spawned in the nearly six years since TEI submitted its proposed revision of Rev. Proc. 91-59 in late 1993."

In addition to issuing more frequent updates on electronic record retention guidance, TEI said, the IRS should develop a process through which taxpayers can routinely provide input about both the technologies and the IRS guidance affecting taxpayer recordkeeping procedures and practices, perhaps by establishing a liaison committee or working group.

TEI's comments are reprinted in this issue of The Tax Executive, beginning on page 367.
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Publication:Tax Executive
Date:Jul 1, 1999
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