New York Codes, Rules and Regulations
Title 20 - DEPARTMENT OF TAXATION AND FINANCE
Chapter I - Franchise and Certain Business Taxes
Subchapter D - Corporate Tax Procedure And Administration
Part 39 - Recordkeeping
Section 39.1 - Recordkeeping
Universal Citation: 20 NY Comp Codes Rules and Regs ยง 39.1
Current through Register Vol. 46, No. 12, March 20, 2024
(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.
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.
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