Records Management Program
IRS Ruling 81-46
SUMMARY: Clarifies that microfilm records are books and records as defined by the IRS. Also provides procedures and requirements for a microfilm system to conform to IRS rules.
Revenue Procedure 81-46, 1981-2 CB 621
26 CFR 601.105: Examination of returns and claims for refund, credit or abatement, determination of correct tax liability.
SEC. 1. PURPOSE
.01 The purpose of this revenue procedure is to update Rev. Proc. 76-43, 1976-2 C.B. 667, which sets forth the conditions under which microfilm (including microfiche) reproduction of general books of account will be considered books and records within the meaning of section 6001 of the Internal Revenue Code. General books of account include cash books, journals, voucher registers, ledgers, etc., and supporting records of detail.
SEC. 2. CHANGES
.01 Previous sections 3.02 and 3.03 requiring (1) permission from the Internal Revenue Service to establish a microfilm system and (2) the Service's review of such system have been eliminated.
.02 Section 5.01 revises previous section 4.01 to eliminate specific standards of microfilm systems.
.03 Section 4.03 has been added to provide that those taxpayers considered not in compliance with this revenue procedure may be subject to all applicable penalties under subtitle F of the Code.
SEC. 3. BACKGROUND
.01 Rev. Rul. 75-265, 1975-2 C.B. 460, holds that microfilm reproduction of general books of account and supporting records of detail will be considered books and records within the meaning of section 6001 of the Code when such books are maintained in accordance with Rev. Proc. 75-33, 1975-2 C.B. 559. Rev. Proc. 75-33 was superseded by Rev. Proc. 76-43.
.02 In undertaking a system of micrographic reproduction of books and records, the taxpayer is responsible for the integrity and availability of the books and records, and for a quality that is sufficient to establish the amount of gross income, deductions, credits, or other matters required to be shown in any return of tax or information.
.03 If a taxpayer uses microfilm, books, records, statements, and returns to which section 6001 of the Code applies, they are required to be authentic, accessible, and readable.
SEC. 4. PROCEDURE
.01 Taxpayers who want to keep books and records on microfilm must meet the requirements set forth in section 5 of this revenue procedure (1) if they have a micrographic system that includes the ability to produce records on microfilm directly on-line from the computer or off-line from magnetic tape, or (2) if they have records photographed onto microfilm from original documents, "hard copy" printouts, etc.
.02 Taxpayers whose micrographic systems do not meet the requirements of section 5 will be considered not in compliance with section 6001 of the Code and section 1.6001 of the Income Tax Regulations.
.03 Taxpayers whose micrographic systems are found to be not in compliance with this revenue procedure may be subject to all applicable penalties under subtitle F of the Code.
SEC. 5. REQUIREMENTS
.01 The following requirements apply to microfilm:
1. Taxpayers must set forth in writing the procedures governing the establishment of a microfilm system, and the individuals who are responsible for maintaining and operating the microfilm system with appropriate authorization from the Board of Directors, general partner(s), or owner, whichever is applicable;
2. The microfilm system must be complete and must be used consistently in the regularly conducted activity of the business;
3. Taxpayers must establish procedures with appropriate documentation so the original document can be followed through the micrographic system;
4. Taxpayers must establish internal procedures for inspection and quality assurance;
5. Taxpayers are responsible for the effective identification, processing, storage, and preservation of microfilm, making it readily available for as long as the contents may become material in the administration of any Internal Revenue law;
6. Taxpayers must keep a record of where, when, by whom, and on what equipment the microfilm was produced;
7. When displayed on a microfilm reader (viewer) or reproduced on paper, the material must exhibit a high degree of legibility and readability. For this purpose, legibility is defined as the quality of a letter or numeral that enables the observer to identify it positively and quickly to the exclusion of all other letters or numerals. Readability is defined as the quality of a group of letters or numerals being recognizable as words or complete numbers;
8. A detailed index of all microfilmed data must be maintained and arranged in a manner that permits the immediate location of any particular record;
9. All microfilming and processing duplication, quality control, storage, identification, and inspection must meet industry standards as set forth by the American National Standards Institute, National Micrographics Association, or National Bureau of Standards;
10. The taxpayer must make available upon the Service's request a reader/printer in good working order at the examination site for reading, locating, and reproducing any record maintained on microfilm; and
11. If any part of the taxpayer's books and records are maintained in any machine- sensible data medium (for example, magnetic tape or magnetic disk) prior to microfilming, the taxpayer must contact the local District Director to get an automatic data processing records evaluation under Rev. Rul. 71-20, 1971-1 C.B. 392.
SEC. 6. EFFECT ON OTHER DOCUMENTS
.01 Microfilm books of account are another class of records added to those described in Rev. Proc. 64-12, 1964-1 (Part 1) C.B. 672, if produced by an automatic data processing system. Rev. Proc. 64-12 is amplified. Rev. Proc. 76-43 is superseded.