New York Codes, Rules and Regulations
Title 20 - DEPARTMENT OF TAXATION AND FINANCE
Chapter IX - Procedural Regulations
Part 2402 - Taxpayer Record Retention Formats
Section 2402.2 - Electronic record retention
Universal Citation: 20 NY Comp Codes Rules and Regs ยง 2402.2
Current through Register Vol. 46, No. 12, March 20, 2024
(a) Definitions.
(1)
Electronic means any
technology having electrical, digital, magnetic, wireless, optical,
electromagnetic, or similar capabilities.
(2)
(i)
Electronic record means information evidencing any act,
transaction, occurrence, event, or other activity that is produced or stored by
electronic means and that is capable of being accurately reproduced in a form
that is perceptible by human sensory capabilities.
(ii) For purposes of this Part:
(a) the term record or
records pertain only to those matters that are under the
jurisdiction of the Commissioner of Taxation and Finance; and
(b) the term taxpayer
includes every person under such jurisdiction that is required to retain
records, whether or not the person is required to pay tax.
(b) General.
(1) Electronic records
meeting the requirements of this Part have the same force and effect as those
taxpayer records that are produced or retained by nonelectronic means and will
be treated by the Department of Taxation and Finance with the same degree of
confidentiality as that accorded any other records of the taxpayer.
(2) For purposes of the Tax Law, any other
matter under the jurisdiction of the commissioner, and this Title, any record
that a taxpayer is required to retain in its original form or as a duplicate
original, actual reproduction, exact copy, true copy, or the like, will be
considered retained in such form if the electronic version accurately reflects
the required information and is accessible to the department, as provided in
subdivision (c) of this section.
(c) Retaining electronic records.
(1) A taxpayer must retain
electronic records that accurately reflect the information that is required to
be set forth in the records. The electronic records, either alone or in
conjunction with the taxpayer's other records, must contain sufficient
information in order to support and verify all of the entries that are made on
the taxpayer's tax returns or informational reports, and to determine the
proper taxes or other amounts that may be due. These records, either alone or
together, must be reconcilable to the taxpayer's reporting periods and must
create an audit trail designed so that the details underlying each of the
entries made on the taxpayer's returns or reports can be identified and made
available to the department upon its request.
(2) Electronic records must be dated, legible
(e.g., if the record is scanned), and maintained and preserved
in such a manner so as to disclose upon retrieval, in readily accessible and
verifiable detail, the basis for and accuracy of the information reported (or
required to be reported) to the department. The electronic records should also
be maintained in a secure storage environment. Failure to maintain adequate
records, or make them available to the department for review, does not relieve
a taxpayer of its obligations under the Tax Law, any other matter under the
jurisdiction of the commissioner, or this Title. Nor is the taxpayer relieved
of these obligations if it uses a third party to maintain its records, such as
a records management service. (See, however, section
2392.1[d][2]
of this Title concerning reasonable cause for
the cancellation of penalties and other additions to tax because of the
destruction of records by a fire or other documented casualty.)
(3) Electronic records should be backed up
regularly, and the backup records should be kept, if possible, at an off-site
storage location. In addition, electronic records should be tested periodically
to confirm their accuracy and integrity.
(4) Electronic records must be accessible to
the department for the entire periods for which the records are required to be
retained. Accordingly, a taxpayer that elects to produce or store any
information by electronic means that evidences any act, transaction,
occurrence, event, or other activity (or any portion thereof) must retain and
make such electronic records available to the department. For example, if a
taxpayer elects to effect a transaction or capture information relating thereto
by electronic means, the taxpayer must keep the electronic record and make it
available to the department upon its request. Generally, records must be
retained for as long as their contents are material to any period open or
extended pursuant to statute, or in any action or proceeding pending before the
Department of Taxation and Finance, or in any judicial action or
proceeding.
(5) The department will
not prescribe the specific technology or technical specifications applicable to
retaining or otherwise managing electronic records. Nor will the department
require the use of a particular type of hardware or software. However, a
taxpayer must provide the department upon its request with opportunity and, if
necessary, the means to ensure the accuracy and integrity of the taxpayer's
electronic records. Such means may include, but are not limited to, suitable
facilities and computer resources (e.g., appropriate hardware
and software, terminal access, computer time, personnel, etc.) as may be
necessary for the department to carry out its audit procedures. See article 41
of the Tax Law (Taxpayers' Bill of Rights) concerning the rights of a taxpayer
and the obligations of the department during an audit.
(d) Documentation.
(1) A taxpayer must maintain, and make
available to the department if requested, documentation that explains:
(i) the specific technologies, technical
specifications, and procedures that are used by the taxpayer to retain and
otherwise manage its electronic records; and
(ii) how these technologies, specifications,
and procedures ensure the accuracy and integrity of the taxpayer's electronic
records, as well as satisfy the requirements of this section that the
electronic records contain sufficient information to support and verify the
entries made on the taxpayer's returns and to determine the correct tax
liabilities, if any. Provided however, the department will not request a
taxpayer to furnish information pertaining to the specifications or functions
of any hardware or software unless such hardware or software was designed and
developed by the taxpayer, or to the requirements of the taxpayer, or unless
the department is not otherwise familiar with the taxpayer's hardware or
software. For example, a taxpayer who purchases a typical personal computer and
who uses a commercially available software package to manage his or her
financial records, in support of personal income tax returns, would not be
required to maintain documentation concerning the specifications or functions
of such hardware or software.
(2) Except as provided in paragraph (1) of
this subdivision, the documentation must indicate:
(i) the functions being performed as they
relate to retaining and otherwise managing the taxpayer's electronic records
(e.g., creating, storing, classifying, modifying, encrypting,
authenticating, tracking, generating, communicating, disposing,
etc.);
(ii) the procedures employed
during each of these functions;
(iii) the internal controls used to ensure
the accuracy and reliability of each of these functions;
(iv) the internal controls used to prevent
the unauthorized access to the taxpayer's electronic records, including
unauthorized additions to, alterations of, and deletions of, such
records;
(v) the internal controls
(or other plans) used to protect against the loss of retained records, such as
in the case of hardware failures, power interruptions, or natural
disasters;
(vi) the taxpayer's
chart of accounts (for all periods requested by the department), including
detailed account descriptions and file formats; and
(vii) any other taxpayer records that are
retained electronically, including detailed descriptions of the contents and
file formats of such records.
(3) The documentation must also include the
nature of and reasons for any changes to the taxpayer's electronic
recordkeeping technology, technical specifications, or procedures; the dates
that such changes were implemented; and, if applicable, the steps taken to
ensure that the records were accurately duplicated.
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