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Business Record Retention Guidelines

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The following information provides a general guideline for the retention of many records. Due to the magnitude of legal requirements, as well as the specific needs of each company, it is advisable for MMA members to consult legal counsel before implementing a tailored records retention policy. In addition to these general guidelines, each business should consider any industry standards that may affect the holding period of records due to unusual legal circumstances.

The retention periods below reflect requirements currently in effect. Because record retention periods are constantly changing, it is necessary to evaluate record retention policies and programs periodically.

• Accounting Records
• Administrative and Corporate Records
• Environmental Protection Records
• Personnel Records
• Employee Benefit Plans
• Health and Safety Records
• Tax Records
• Individual Records
• Environmental Protection Laws
• Internal Revenue Code
• Cautionary Note Regarding Sarbanes-Oxley

Environmental Protection Laws

The following environmental federal statutes and regulations control types of records required and corresponding retention periods. They should be consulted for information relevant to a specific business:

• The Clean Air Act
• The Clean Water Act
• The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
• The Resource Conservation and Recovery Act (RCRA)
• The Toxic Substance Control Act (TSCA)
• The Superfund Amendments and Reauthorization Act (SARA)

Internal Revenue Code

Under the Internal Revenue Code, the following records are subject to the “materially” rule for determining retention time. The general requirement is that records must be kept as long as the contents may become material in the administration of any internal revenue law. Consult with legal counsel for suggested retention periods:

• Employer accident and health records
• Pension, annuity, stock bonus, profit sharing records or other plans of deferred compensation
• Supplemental unemployment benefit trust records
• Travel, transportation, entertainment and other business expense records
• Records of depreciation of property
• Records of property held for the production of income
• Inventory records
• Records of expenditures through trademarks and tradenames treated as deferred expenses
• Records of intercompany transactions between members and an affiliated group
• Records of deductions for dividends paid (including cancelled dividend checks and receipts from shareholders acknowledging a payment) — all recommended to be kept indefinitely
• DISC corporation records sufficient to establish details of transactions
• Records relating to corporate organization and reorganization
• Transfer of property to the corporation controlled by the transferor
• Permanent records of tax treatment of corporate reorganizations
• Records pertaining to §1244 stock shareholders and S corporation shareholders
• Reports required under the Tax Equity and Fiscal Responsibilities Act (TEFRA), including brokers reports, state refunds, trade or business payments and tip income
• Records sufficient to establish the details of the required pension withholding under TEFRA
• Records relating to property for which basis must be determined to compute gain or loss upon disposition, depreciation, amortization or depletion — should be retained at least until a taxable disposition is made

Cautionary Note Regarding Sarbanes-Oxley

The Sarbanes-Oxley Act of 2002 created record retention requirements that apply to all companies, whether or not publicly traded. For example, Section 802 provides that it is a crime for someone to intentionally destroy, alter, mutilate, conceal, cover up or falsify any records, documents or tangible objects that are involved in (or could be involved in) a U.S. government investigation or prosecution of any matter or in a Chapter 11 bankruptcy filing.

Section 1102 expanded the existing statute regarding obstruction of justice to make it a crime to corruptly alter or destroy a record, document or other object, “with the intent to impair the object’s integrity or availability for the use in an official proceeding.”

The penalty for violating either Section 802 or Section 1102 is a fine, imprisonment for not more than 20 years or both. These sections apply not only to hard copies of all documents but also to e-mail, voice mail, PDAs and other forms of electronic hardware and software. Therefore, it is recommended that record retention policies specifically refer to these types of tools.

Your company’s record retention policy should provide that the (otherwise permissible) destruction of a document or documents cease immediately upon any indication of impropriety or threat of a federal investigation or proceeding. You should also have a procedure in place to notify all employees promptly of the existence of any such event. It is also recommended that you have a “point person” to field questions from employees and to communicate specific requirements and instruction, including, when necessary, the instruction to cease destruction of documents.

The information above was compiled through MMA research and by Clark Hill PLC, 500 Woodward Ave., Ste. 3500, Detroit MI 48226-3435, 313-965-8300, email@clarkhill.com.