by Judy Joyce

Created on: October 04, 2008

DO NOT SWITCH FROM PAPER TO ELECTRONIC BANK (AND OTHER) STATEMENTS. THE WOLF AT THE DOOR FOR HANSEL AND GRETEL WITH THE THE IRS

Ah yes. If only Hansel and Gretel had left bread crumbs along the route to grandmother's house, the IRS might have considered removing all fees, fines, and general late payment charges for failure to file their income tax statement by April 15th while held in captivity. Even filing an extension to locate all those receipts would not have kept the wolf from the door in the emotionally charged times an IRS audit represents.

You can just see it all now, can't you? Bank of America buys Merrill-Lynch. Wells Fargo and Citibank duke it out over Wachovia and you, dear taxpayer, are willing to rely on their records for proof of your financial transactions at tax time. Think again.

A paper trail is a necessary evil under the current tax code requiring all Federal tax records to be maintained for several years.

Publication 552 states the following:

Kinds of Records To Keep
The IRS does not require you to keep your records in a particular way. Keep them in a manner that allows you and the IRS to determine your correct tax.
You can use your checkbook to keep a record of your income and expenses. In your checkbook you should record amounts, sources of deposits, and types of expenses. You also need to keep documents, such as receipts and sales slips, that can help prove a deduction.
You should keep your records in an orderly fashion and in a safe place. Keep them by year and type of income or expense. One method is to keep all records related to a particular item in a designated envelope.
In this section you will find guidance about basic records that everyone should keep. The section also provides guidance about specific records you should keep for certain items.

The publication goes on to address various ways to keep records including electronic statements as a record keeping method. Make no mistake about it, the above explana-tion is where the action is when it comes to the need for a paper trail.

Do not be fooled. While the IRS does not "require you to keep your records in a particular way", when it comes time to produce those records, a paper is the most reliable way.

Electronic media for financial records is a wonderful thing. There are many benefits to it's use which are fast, efficient, and accurate. The bank statements you get from the bank at the end of the month replicate what comes in the mail to your house when you continue getting paper statements.

The facts are these. IRS investigations do not come at an appointed time. Instead, it comes at the time, place, and manner that the IRS dictates. While you may be given an option of where and how to meet from time to time depending on the type of audit they have in mind, you do not want to have to go on-line to print out statements or other documents. At that time, you could only pray the institution where the records are on-line ready is up and running, kept the records as far back as they need to be, and will printout on that old printer of yours where you run out of expensive ink cartridges from time to time.

Don't be like Hansel and Gretel. You need a paper trail to be rescued. Keep those paper statements coming unless or until the IRS agrees to rely on your records kept by someone else in the that 3d location. Should they ever do that, it still would not clear your responsibility for accuracy. A transfer of liability for late fees and all other charges would likewise have to be implemented. Keep that wolf from your door.

Learn more about this author, Judy Joyce.
Click here to send this author comments or questions.