USA IRS Paperless Accountable Plan Rules

In the United States, businesses may keep records of their financial and tax-related transactions in electronic form instead of paper, as long as the electronic storage system meets IRS requirements. The IRS explains these rules in Revenue Procedure 97-22, which describes how electronic records can satisfy tax recordkeeping obligations.

What the IRS requires for electronic records

An electronic storage system must be able to:

• Transfer paper or computerized records into electronic form accurately and completely.
• Index, store, preserve, retrieve, and reproduce the stored records so they can be read and understood.
• Maintain the integrity and reliability of the records, including controls to prevent unauthorized changes.
• Provide access to the stored records and any necessary description of the system if the IRS requests them.

When these conditions are met, the IRS treats electronically stored records as valid for tax compliance purposes; paper originals may be destroyed after conversion.

What records can be stored electronically

Under IRS rules, most business records that support income, expenses, deductions, and credits may be kept electronically. These include digital or scanned copies of receipts, invoices, accounting records, bank statements, canceled checks, and expense documentation that support your tax filings.

The IRS applies the same standards to electronic documents as paper records—records must be accurate, readable, and retrievable during audits or examinations.

How long records must be kept

For federal tax purposes, the IRS generally recommends:

• Keep records for at least three years from the date you filed the return, or two years from the date you paid the tax, whichever is later.
• Keep records for seven years if you file a claim for a loss from worthless securities or a bad debt deduction.
• Keep employment tax records for at least four years after the date the tax becomes due or is paid, whichever is later.

Electronic records must remain accessible and retrievable for at least as long as they are required to be retained under these rules.

Audit and access considerations

If the IRS examines your tax return, you may be asked to produce electronic records in a readable format. The electronic system should be capable of reproducing records so all necessary information is visible and understandable by IRS personnel.

The IRS may also periodically test electronic storage systems to confirm they reliably preserve records in compliance with Revenue Procedure 97-22.

Bottom line

Under US tax law:

• Electronic recordkeeping is permitted and widely accepted if the system meets IRS electronic storage requirements.
• Digital records must be as complete, accurate, and retrievable as paper records.
• Businesses should retain electronic records for the IRS-specified retention periods and be able to produce them if requested.