the paper armageddon a practical guide for creating a document retention policy for your company

IRS Circular 230 Disclosure: To ensure compliance with the requirements imposed by the IRS, we inform you that any tax advice contained in this communication, including any attachment to this communication, is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to any other person any transaction or matter addressed herein.

Lisa Chapman, Esq. The Royse Law Firm, PC

[email protected]

April 23, 2014

THE PAPER ARMAGEDDON: A PRACTICAL GUIDE FOR CREATING A DOCUMENT RETENTION

POLICY FOR YOUR COMPANY

mailto:[email protected]

THE ARMAGEDDON EFFECT

• Significant changes over the past 25 years – Increased reliance on “paperless” office

• Benefits include efficiency and ease of use • Impact of social media • Environmental effects

WHAT IS A DOCUMENT RETENTION PLAN?

Two issues: 1. Should you retain company documents? 2. In what form and for how long should you

retain company documents?

WHAT SHOULD INFORM THESE DECISIONS?

• Legal obligations – Federal and State statutes and administrative

rulings

• Industry and cultural standards • Potential risk of litigation and legal compliance

requirements • Comfort zone - the extent to which a company

is comfortable relying on digital resources to preserve documents

LEGAL OBLIGATIONS: TAXING AUTHORITIES

• Business income tax returns – All supporting documents – Full corroboration will be required for an audit

• Employment tax records – E.g., employer identification number, amounts

and dates of wages, annuity or pension payments, tax payments, personal identification information about employees, tip allocations, inclusive dates of employment, and job titles


• Business asset records – Proof of ownership and/or sale – Required to show amortization, depreciation,

gains, losses, or deductions – Keep original copies of deeds and proof of

payment

• Business ledgers and other important documents – E.g., journal entries, P & L statements, and

financial statements


• Legal documents – E.g., bylaws, board of directors minutes, annual

meeting minutes, and business formation documents

• Bank account records • Credit card records • Human resources files


Duration of retention required by tax authorities: • Depends on the period of limitations during which you

may seek a refund or the taxing authority may conduct an audit – You need these documents if you want to amend your

return or if a taxing authority elects to audit your returns • Business income records

– Generally three years if you owe additional taxes unless: • You don’t report income and the underreporting is equal to or

greater than 25% of your gross income as shown on your tax returns = 6 years

• If you don’t file a return or file a fraudulent return = no limit • If you intend to claim a credit or refund = 3 years after taxes paid • If you intend to file a claim for loss of a worthless security = 7 years


Duration of retention: • Employment records

– Four years after date taxes were paid or due, whichever is later • Business asset records

– The clock begins to run from the date of sale • Legal documents

– No limit • Bank account and credit card records

– 7 years • Human resources files

– Applicants – 3 years – Employees – 7 years from the date of termination or 10 years

after worker’s compensation benefits were paid – If it is litigation – 5 years from the date of conclusion

INDUSTRY AND CULTURAL STANDARDS

• Significant variance – degree to which regulated

• Comparison with other cultures

POTENTIAL RISK OF LITIGATION

• Balance of two considerations – (1) you need to save documents in order to mount

a defense/pursue a claim, however – (2) you don’t want too many documents retained

as it will be very costly to defend a lawsuit

• Federal and state laws concerning document retention: – “Litigation Hold” – Production of digital records

IN WHAT FORM SHOULD YOU PRESERVE DOCUMENTS?

Certain documents MUST be preserved in paper form: • Wills, codicils, and testamentary trusts • Documents relating to adoption, divorce, and other

family law matters • Court orders, notices, and other court documents • Notices of cancellation or termination of utility services • Notices of default, repossession, foreclosure, or

eviction • Product recall notices affecting health and safety • Documents relating to the transportation of hazardous

materials

IN WHAT FORM SHOULD YOU PRESERVE DOCUMENTS?

• Your comfort zone – the extent to which you want to rely on digital resources to preserve documents – Technology meltdown – Hacking – Your workforce population – Your service provider’s requirements

FOR HOW LONG SHOULD YOU PRESERVE DOCUMENTS?

• Consider litigation issues – Best evidence rules/compliance with statutes

• Legal requirements

DOCUMENTS MAY BE PRESERVED IN ELECTRONIC FORM

• Wire transfers and electronic checks • Bank deposit images • Tax returns • Tax receipts • Contracts • Warranties • License agreement • SEC reports • Auto insurance • Business operation documents: marketing materials, collateral • Emails/texts/tweets • Video and photographs • Voicemails • Trademark registrations • Employee handbooks

OTHER “ELECTRONIC VS PAPER” ISSUES

• Electronic signatures – Legal validity

• Some documents must be notarized/recorded by county recorder – Grant deeds, deeds of trust, mortgages, and

leases

• Personal documents to save in hardcopy – Passports, drivers license, identification, work

place rules, business licenses, and health permits

PERSONAL RECORDS Categorized by type: • Income

– Form W2, Form 1099, bank statements, brokerage statements

• Expenses – sales slips, invoices, receipts, cancelled checks, or proof of

payment • Home

– closing statements, purchase and sales invoices, proof of payment, insurance records, Form 2119 (if you sold home before 1998)

• Investments – brokerage statements, mutual fund statements, Form(s)

1099, Form 2439

PERSONAL RECORDS

How Long Should You Save These Documents? • Generally three years if you owe additional taxes

unless: – You don’t report income and the underreporting is

equal to or greater than 25% of your gross income as shown on your tax returns = 6 years

– If you don’t file a return or file a fraudulent return = no limit

– If you intend to claim a credit or refund = 3 years after taxes paid

– If you intend to file a claim for loss of a worthless security = 7 years

PERSONAL RECORDS

Mechanics of document retention plan: • Plan type • Compliance with the plan

Lisa Chapman has represented startup and mid-sized companies for over twenty years in the areas of employment counseling, employment litigation, commercial litigation and trade secret litigation. In her counseling practice Lisa uses her substantial experience as a trial attorney to counsel companies on employment compliance issues, including wage and hour laws, employment policies, hiring policies, sexual harassment training, leave of absence, and other employment related issues. She regularly counsels companies involved in mergers and acquisitions about due diligence issues relating to employment law. Lisa has litigated a wide variety of commercial and employment related matters in federal and state courts and before the Equal Employment Opportunity Commission, the U.S. Department of Labor, and the California Department of Labor. Among others, she has litigated cases involving sexual harassment, discrimination, and class action wage and hour claims. Lisa puts a priority on achieving successful settlements and resolutions for her clients in a timely and cost effective manner. Telephone: (650) 813 9700 ext. 221 Email: [email protected]

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