Rev. Rul. 56-260

Advice has been requested whether the retention of only microfilm reproductions of records by companies liable for manufacturers excise taxes on gasoline and lubricating oil, imposed by sections 4081 and 4091 of the Internal Revenue Code of 1954, meets the record keeping requirements of the law and regulations.

Section 6001 of the Code provides that every person liable for any tax imposed by the Code, or for the collection thereof, shall keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary of the Treasury or his delegate may from time to time prescribe.

Pursuant to the provisions of section 314.62 of Regulations 44, made applicable to the 1954 Code by Treasury Decision 6091, C. B. 1954-2, 47, every person required to file a return and pay tax on the sale or use of gasoline or lubricating oil must keep accurate and complete records and accounts with respect to such sale or use, together with duplicate returns. Records are required to be maintained in such a manner as to show:

(1) Quantity on hand at beginning of month;

(2) Quantity produced during the month;

(3) Quantity purchased tax free;

(4) Quantity purchased tax paid;

(5) Quantity sold tax free;

(6) Quantity sold subject to tax;

(7) Quantity used in production of other taxable commodities;

(8) Quantity used otherwise;

(9) Actual wastage, evaporation, and other losses, etc.; and

(10) Quantity on hand at end of month.

In I. T. 3866, C. B. 1947-2, 68, the Internal Revenue Service pointed out that it would be undesirable and impracticable to attempt to make income tax determinations on the basis of microfilm reproductions of general books of account, such as cash books, journals, voucher registers, ledgers, etc. It was held, however, that no objection will be interposed to the retention by taxpayers of only microfilm reproductions of supporting records of details, such as payroll records, cancelled checks, invoices, vouchers, etc., provided: (1) the taxpayer will retain microfilmed copies so long as the contents thereof may become material in the administration of any internal revenue law; (2) the taxpayer will provide appropriate facilities for preservation of the films and for the ready inspection and location of the particular records, including a projector for viewing the records, in the event inspection is necessary for tax purposes; and (3) the taxpayer will be ready to make any transcriptions of the information contained on the microfilm which may be required.

Consistent with the policy stated in I. T. 3866, supra, it will be permissible for a company, liable for tax on gasoline or lubricating oil, to retain microfilm reproductions of supporting records, for example, (1) invoices showing transactions with customers and suppliers, (2) transfer invoices recording transactions within the company, and (3) exemption certificates and other documents supporting tax-free and nontaxable transactions. Permission to retain only microfilm reproductions of such supporting records is predicated upon the compliance by the company with the three conditions enumerated in I. T. 3866 regarding the retention, viewing, etc., of the microfilm reproductions. However, it will not be permissible for such a company to retain only microfilm reproductions of general books of account containing the type of information specified in section 314.62 of Regulations 44.