Records Management

Assets & Liabilities Assets are the property, such as investments, buildings and furniture an organization owns and uses in its activities. Liabilities reflect the pecuniary obligations of the organization. A public charity must keep records to verify certain information about its assets and liabilities. Records should show:

-when and how the asset was acquired -whether any debt was used to acquire the asset

-documents that support mortgages, notes, loans, or other forms of debt

-purchase price

-cost of any improvements

-deductions taken for depreciation, if any

-deductions taken for casualty losses, if any, such as losses resulting from fires or storms

-how the asset was used

-when and how the asset was disposed of – selling price

-expenses of sale

Documents that may show the above information include: purchase and sales invoices, real estate closing statements, canceled checks, and financing documents. If a public charity does not have canceled checks, it may be able to show payment with certain financial account statements prepared by financial institutions. These include account statements prepared for the financial institution by a third party. All information, including account statements must be highly legible.The following defines acceptable account statements.

IF payment is by:   check: THEN statement must show: check check number, amount, payee’s name, and date the check amount was posted to the account by the financial institution.

IF payment is by:   electronic  funds transfer:  THEN statement must show: amount transferred, payee’s name, and date the transfer was posted to the account by the financial institution.

IF payment is by:   credit card:   THEN statement must show: amount charged, payee’s name, and transaction date

How long should records be kept?

Public charities must keep records for federal tax purposes for as long as they may be needed to document evidence of compliance with provisions of the Code. Generally, this means the organization must keep records that support an item of income or deduction on a return until the statute of limitations for that return runs.The statute of limitations has run when the organization can no longer amend its return and the IRS can no longer assess additional tax. Generally, the statute of limitations runs three years after the date the return is due or filed, whichever is later. An organization may be required to retain records longer for other legal purposes, including state or local tax purposes.

Record Retention Periods

Record retention periods vary depending on the types of records and returns.

Permanent Records – Some records should be kept permanently.These include the application for recognition of tax-exempt status, the determination letter recognizing tax-exempt status, and organizing documents, such as articles of incorporation and by-laws, with amendments, as well as board minutes.

Employment Tax Records – If an organization has employees, it must keep employment tax records for at least four years after the date the tax becomes due or is paid, whichever is later.

Records for Non-Tax Purposes – When records are no longer needed for tax purposes, an organization should keep them until they are no longer needed for non-tax purposes. For example, a grantor, insurance company, creditor, or state agency may require that records be kept longer than the IRS requires.

The information in this blog was taken from or adapted from the IRS website. Nothing contained herein is to be construed as legal or accounting advice.