New Guidelines Cut Recordkeeping Burden

WASHINGTON - Millions of taxpayers could find recordkeeping easier under new procedures issued by the Internal Revenue Service. IRS will now accept certain financial account statements as proof that payments were made by check, credit card or electronic funds transfer (EFT). Taxpayers with such statements will no longer have to keep their original checks or charge slips.

Most credit card and EFT statements already have the required information -- transaction date, amount and payee's name. A few banks have started to put this data on account statements when they do not return canceled checks to customers. All banks keep microfilm or electronic records of the canceled checks, from which copies can be made if needed.

Revenue Procedure 92-71 describes the information needed to be shown on account statements for them to be treated as proof of payment of an expense. This information should help financial institutions enhance their account statements.

Even without such enhanced statements, customers do not always have to obtain check copies to prove payment. The IRS accepts other payment evidence, such as the combination of an invoice marked "paid," a check register or carbon copy of the check, and an account statement with the check number, date and amount.

However, proof of payment alone does not necessarily establish the tax treatment of an expense. Taxpayers should also keep other documents -- such as receipts listing the items purchased -- to show the relationship between their expenses and the deductions they claim. For example, a payment to a drugstore would not support a medical deduction without a receipt verifying the purchase of prescriptions or other allowable items.

The new procedures do not change the circumstances under which IRS might ask taxpayers for proof of payment. They only clarify the various forms that such proof may take.

The IRS may also request copies of canceled checks or written records of credit card charges or EFTs for purposes other than establishing proof of payment. The IRS might need to review the endorsements, date stamps, or other data on the records. Individuals seldom encounter such requests, which usually occur during investigations of employment taxes, fraud, or money laundering.

Revenue Procedure 92-71 will be published in Internal Revenue Bulletin 1992-35, dated August 31, 1992.

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