The Leading Edge - Spring 2010 - PKF - 10

PAnnell Kerr ForsTer of TexAs, P.C.
Certified Public Accountants & Professional Advisors

The basics of a solid document retention program
By Byron M. Hebert, CPA, CTP, and Annabella Green, SPHR

oes your company have a good Document Retention/ Retrieval Program (DRP)? How long does it take you to find a document in your current system? What exposure do you have if your DRP mantra is “KEF”—Keep Everything Forever? Document retention is a very complicated, multi-faceted issue for large and small companies. With more paper being used and technology as an enabler, larger companies quickly realized the depth of the problem, addressing the issue by hiring outside consultants to help with the planning and implementation of document retention and retrieval programs. These companies recognized the value in being able to retrieve documents quickly for projects, lawsuits and other uses. Middle-market companies have the same document problems, yet the most glaring issue for these organizations is the exposure and storage cost associated with keeping records for years and years. Three hot questions to consider in developing a DRP include: • How long do you plan to keep your documents? • Are there any documents you should keep indefinitely? • Can you keep your documents in electronic form and how do you ensure the company has control over all critical documents in today’s electronic communication age?

Length of time. From a tax compliance standpoint, the federal statute of limitations will begin on the due date of the return or when you file your company’s federal return, whichever is latest. The federal statute of limitations runs for three years, but state statutes vary by state. In Texas, the statute is four years. Therefore, you must make a decision as to how long you want to keep your company’s records. Most companies consider a date between five to seven years to hold records. What to keep. Now that you have established a holding period; what records do you want to keep and are there any records that should be kept indefinitely? The answer to the second question is “yes.” It is recommended that certain records be considered “permanent” records of the company, including annual financial statements, annual federal and state tax returns, articles of incorporation, partnership agreements, stock certificates, real estate closing documents, and certain year end payroll filings. These records should be filed and kept indefinitely. Other supporting documentation, such as canceled checks, deposit slips, bank statements, vendor invoices, customer billing records, expense reports and contracts after expiration should be kept

in accordance with the timeline of five to seven years. The company should take an audit of all the critical documents that exist within its company, including personnel files, vendor and customer contracts, lease agreements, and financial records. In addition, the company should have a plan for tracking, accumulating, storing and destroying those documents in accordance with its DRP. Hard copy documents can be identified and accumulated fairly easily. Electronic documents. E-mails and financial reports on hard drives, magnetic disk or CDs must be maintained in order to comply with the IRS’s document support requirements, even if the company changes software programs. Having a process for accumulating these documents and having them available is critical. In the past, IT departments were focused on ensuring information was backed up on a tape drive or disk. These documents may have been backed up for six months or more. Now, once information is to be destroyed, the outdated information on the backup tapes must be destroyed as well. If you have customer agreements that were documented and confirmed through e-mail, these messages should become part of your company’s documents to be included in DRP. As a

result, a good DRP will include a company policy and procedures regarding the storage and deletion of individual e-mails by a company’s employees. While this article does not cover all aspects of a good DRP, any document retention program should be reviewed by legal counsel for completeness. In addition, a document retention program is only as good as its maintenance. In other words, once a company adopts a document retention program, it must comply with that program to the letter to avoid scrutiny by an outside predator, whether this is the IRS or a pending lawsuit. Consider the consequences. Andersen was charged with obstruction of justice, not because it did not have a document retention program, but because it did not decide to comply with that program until the company was sued in the Enron case. The key is to have a well-documented document retention policy, train employees on the policy and follow the policy to the letter. Byron M. Hebert, CPA, CTP, is director of Entrepreneurial Advisory Services for PKF Texas. Contact him at (713) 860-1455 or bhebert@ pkftexas.com. Annabella Green, SPHR, is director of Human Capital & Firm Administration for PKF Texas. Contact her at (713) 860-1484 or agreen@pkftexas.com.

Tax consequences of FBAr filings: understand the rules, process and penalties
Continued from page 9

with the taxpayer’s counsel negotiating directly with the IRS Criminal Investigation division, or 2) simply filing amended or original delinquent returns for up to six years for income tax returns, and up to five years of amended or delinquent original FBARs. Choosing between these

alternatives is not for the novice or the faint of heart; it really should be done with the close involvement of an experienced attorney. Yet, when done correctly, taxpayers can be reasonably assured they will not be criminally prosecuted and that the maximum potential civil penalties will not apply.

Non-lawyer practitioners who receive information indicating their clients have foreign financial accounts that were not previously reported correctly for income tax or FBAR purposes should recommend that the client seek an attorney. e

Alison Muecke, CPA, is a senior manager in Tax at PKF Texas. She may be reached at (713) 860-1413 or amuecke@pkftexas.com. Attorney Jack Townsend is a partner with Townsend & Jones, LLP. Contact him at (713) 521-9977 or jack@ tjtaxlaw.com. He also writes a blog, www.federaltaxcrimes.blogspot.com.
VOLUME 10 • ISSUE 3 • SprIng 2010

The Leading Edge - Spring 2010 - PKF

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