N.Y. Comp. Codes R. & Regs. tit. 20 § 39.1

Current through Register Vol. 46, No. 50, December 11, 2024

Section 39.1 - Recordkeeping

(a) General.

(1) Every taxpayer must keep complete and adequate records as may be necessary in order to determine the proper tax and/or fee due and/or to determine the information required to be reported. Such records must be retained so long as they may be or may become material in the administration of article 9, 9-A, 13, 32, 33 or 33-A of the Tax Law. The term taxpayer as used in this section means a person, within the meaning of section 1080 (b)(3) of the Tax Law, subject to a tax and/or fee imposed by article 9, 9-A, 13, 32, 33 or 33-A of the Tax Law and/or required to file a return of information as provided for by any such article.

(2) Every taxpayer must keep permanent books of account or records, including inventories and other pertinent data, as are sufficient to establish the amount of receipts, premiums, gross income, assets, capital, gain, loss, deductions, credits or other matters required to be shown by such taxpayer in any report or return required by any such article. Such records must be dated, legible and maintained and preserved in such manner as to disclose in readily accessible and verifiable detail the basis and accuracy of the entries reported. All retained records must be clearly labeled and should be stored in a secure environment. A taxpayer may elect to retain records as hard-copy records, electronic records, or both. See Part 2402 of this Title for taxpayer record retention formats. Additional requirements are provided for in subdivision (b) of this section for taxpayers which maintain or process records on an Automated Data Processing (ADP) system. References to ADP systems include all accounting systems and/or financial systems and subsystems which process all or part of a taxpayer's transactions, records or other pertinent data by other than manual methods.

(3) A taxpayer may retain the records described in paragraph (2) of this subdivision, that are created or received in the ordinary course of business, on microfilm (including microfiche) provided the following requirements are met:

(i) 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, must be set forth in writing;

(ii) the microfilm system must be complete and must be used consistently in the regularly conducted activity of the business;

(iii) procedures with appropriate documentation must be established so the original document can be followed through the micrographic system;

(iv) internal procedures for inspection and quality assurance must be established;

(v) the taxpayer is 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 article 9, 9- A, 13, 32, 33 or 33-A of the Tax Law;

(vi) a record must be kept of where, when, by whom, and on what equipment the microfilm was produced;

(vii) 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;

(viii) a detailed index of all microfilmed data must be maintained and arranged in a manner that permits the immediate location of any particular record; and

(ix) the taxpayer must make available upon request a reader/printer in good working order at the examination site for reading, locating and reproducing any record maintained on microfilm.

(4) Every taxpayer should make periodic checks on all records being retained for use by the Department of Taxation and Finance. If any records required to be retained are subsequently lost, destroyed, damaged, or found to be incomplete or materially inaccurate, the taxpayer must recreate the files within a reasonable period of time.

(5) Every taxpayer must make available to the Department of Taxation and Finance upon request any records described in this section, together with tax returns, including supporting schedules, filed with the Federal government, and supporting documents related thereto. Additionally, every taxpayer must provide the representative of such department with suitable facilities for conducting an audit or examination.

(6) The Commissioner of Taxation and Finance may enter into an agreement with a taxpayer to modify or waive any or all of the specific requirements of this section if hardship is shown in an application filed pursuant to this paragraph and the recordkeeping under such agreement permits the taxpayer and the department to accurately determine the taxpayer's tax liability. Such taxpayer remains subject to all requirements of this section that are not specifically modified or waived by such agreement. A request for modification or waiver shall be in writing and must be filed at least 90 days before the beginning of the taxable year for which such modification or waiver is requested. In determining whether hardship has been shown, the principal factor to be taken into account will be the amount by which the cost of recordkeeping in accordance with this section exceeds the cost of recordkeeping employed or proposed to be employed by the taxpayer. Additional factors to be considered include, but are not limited to: the presence of a pre-existing agreement between the taxpayer and the Internal Revenue Service regarding record retention for Federal income tax purposes and any unusual circumstances. If the commissioner grants a modification or waiver, the commissioner shall specify the period of time to which it applies and shall also prescribe the method of recordkeeping to be utilized.

(b) Records prepared by ADP systems.

(1) This subdivision applies to taxpayers that process or maintain records on ADP systems. These specific provisions supplement Part 2402 of this Title concerning taxpayer record retention formats.

(i)

(a) This subdivision applies to taxpayers which process or maintain records on an ADP system if:

(1) the assets (valued at cost) of the taxpayer equal $10,000,000 or more at any time during the previous taxable year; or

(2) such level of assets is not reached but either of the conditions provided for in subparagraph (ii) of this paragraph are met.

(b) In the case of a group of corporations which file a combined report, this subdivision also applies to the taxpayers in such combined group which process or maintain records on an ADP system if:

(1) the assets (valued at cost) of the combined group of corporations when aggregated equal $10,000,000 or more at any time during the previous taxable year; or

(2) such level of assets is not reached by the combined group of corporations but either of the conditions provided for in subparagraph (ii) of this paragraph are met.

(ii) Taxpayers which process or maintain records on an ADP system and do not have assets (valued at cost) equal to $10,000,000 or more at any time during the previous taxable year or are members of a combined group whose assets when aggregated do not reach such level shall comply with the provisions of this subdivision if either of the following conditions exist:

(a) information required by subdivision (a) of this section is not in the hard- copy books and records, but is available in machine-sensible records; or

(b) machine-sensible records were used for computations that cannot be reasonably verified or recomputed without using a computer (e.g., Last-In, First-Out [LIFO] inventories).

(2) All machine-sensible records must be retained and such records must be in a retrievable format that provides the information necessary to determine the proper tax and/or fee due and/or to determine the information required to be reported. The utilization of a service bureau, time-sharing service or value added network does not relieve the taxpayer of its responsibilities as described in this subdivision.

(3)

(i) Documentation that provides a complete description of the ADP portion of the accounting system, including all subsystems and files that feed into the accounting system, must be retained and made available to the department upon request. Statements and illustrations as to the scope of the operations should be sufficiently detailed to indicate:

(a) the application being performed;

(b) the procedures employed in each application;

(c) the controls used to ensure accurate and reliable processing; and

(d) the controls used to prevent the unauthorized addition, alteration, or deletion of retained records.

(ii) The following specific documentation for all retained files shall also be kept:

(a) record formats (including the meaning of all "codes" used to represent information);

(b) flowcharts for a system and a program;

(c) label descriptions;

(d) source program listings of programs that created the retained files;

(e) detailed charts of accounts (for specific periods);

(f) evidence that periodic checks of the retained records that are prescribed in paragraph (a)(4) of this section were performed; and

(g) evidence that the retained records reconcile to the books and the tax report or return. This reconciliation shall establish the relationship between the total of the amounts in the retained records by account to the account totals in the books and to the tax report or return.

(4) Any change to the ADP system which affects the accounting system and/or subsystems, together with their effective dates, shall be documented in order to preserve an accurate chronological record. This record should include any changes to software or systems and any changes to the formats of files.

(5) Every taxpayer must be able to process the retained records at the time of a department examination. Processing shall include the ability to print a hardcopy of any record. When the data processing system that created the records is being replaced by a system with which the records would be incompatible, the taxpayer shall convert pre-existing records to a format that is compatible with the new system.

(6) Every taxpayer shall provide the department, at the time of an examination, with computer resources (e.g., terminal access, computer time and personnel) that are necessary for the processing of the retained records.

(7) Every taxpayer which utilizes a Data Base Management System (DBMS), a software system that creates, controls, retrieves, and provides accessibility to data stored in a data base, must create a sequential file(s) that contains all the detail necessary to identify the underlying source documents. In addition to the documentation described in paragraphs (3) and (4) of this subdivision, the following documentation pertaining to each DBMS system must be retained:

(i) Data Base Description (DBD);

(ii) record layout of each segment with respect to the fields in the segment;

(iii) systems control language;

(iv) Program Specification Block (PSB); and

(v) Program Communication Block (PCB).

(8)

(i) Every taxpayer which utilizes Electronic Data Interchange (EDI) technology, the computer-to-computer exchange of business information, must retain machine-sensible records that, in combination with any other records (e.g., the underlying contracts, price lists, and price changes), contain all of the detailed information required by subdivision (a) of this section. The extent of the detail in the retained electronic and other records, if any, must be equivalent to the level of detail contained in an acceptable paper record. For example, the retained records for an electronic invoice must contain identification of the vendor by name, invoice date, product description, quantity purchased and price. The taxpayer may capture this information at any level within the accounting system provided the audit trail, authenticity, and integrity of the retained records can be established.

(ii) Hardcopy records generated at the time of a transaction (e.g., credit card receipts) need not be retained if all the details relating to the transaction are subsequently received by the taxpayer in an EDI transaction and are retained by the taxpayer in accordance with this section.

N.Y. Comp. Codes R. & Regs. Tit. 20 § 39.1

This section shall take effect immediately, except that the specific requirements contained in paragraphs (a)(2) and (3), and subdivision (b) shall take effect on January 1, 1993.