RE: ELECTRONIC RECORDS
I have received several recent calls asking: (1) how long a broker is required to retain records; and (2) is a broker required to retain the original records once converted to electronic files.
Here is a summary of the general recommendations.
Business & Professions Code §1014(a) requires the broker to retain all listings, deposit receipts, cancelled checks, offers, contracts and other documents for which a license is required for three (3) years from the date of closing or termination.
The broker does not need to retain the original files once they are converted to electronic files so long as the conversion complies with Title 10, Chapter 6, Reg. 2729. Reg. 2729 allows a broker to store their files on electronic media if the following terms are met:
1. The electronic files must not be able to be erased or changed;
2. The electronic record must provide for ready access to each document;
3. The electronic record must be viewable from the broker’s office (i.e. not from an off-site storage facility); and
4. The electronic files must be converted from the original record at the broker’s office.
Although Business & Professions Code §10148(a) requires retention for three (3) years, the statute of limitations on some causes of action do not expire for four (4) years. I recommend that the broker keep transaction files for at least four (4) years.
The broker does not need to retain the original records once they have been converted to electronic files.
Keep copies of tax returns for seven (7) years. The IRS has three (3) years from the date you file to audit your return if it believes that you made a mistake. It has six (6) years to audit you if it believes that you underreported your gross income by 25% or more. It has no statute of limitations to audit a “fraudulent” return.
IRA, Retirement and Savings Records.
Keep copies for all contributions permanently. You may need to prove why you are not required to pay tax when you begin to withdraw it during retirement.
Keep monthly bank statements for seven (7) years. Keep checks relating to taxes, business expenses, mortgage payments and home improvements permanently. All other checks can be shred annually at your discretion.
Home Improvement Records.
Keep documents related to your purchase and sale of real estate for at least six (6) years. Keep home improvement records permanently. The expenses will reduce your capital gains tax when you sell.
Bills can generally be shred once you receive a canceled check or statement showing that the payment has cleared. This is true for electric, gas, telephone, credit card, car payment and other revolving debt or consumable transactions.
Receipts for larger items such as appliances, jewelry and collectibles should be kept permanently in case you need to prove value in the event of an insurable loss. Receipts for items under warranty should be kept at least until the warranty expires.