Rev. Rul. 58-601

The Internal Revenue Service recognizes the need for a clarification of its position concerning the use of `work sheets' which may be considered as fulfilling the requirements of the Income Tax Regulations that permanent auxiliary records be maintained for reconciling differences in depreciation reserves maintained for tax and book purposes.

Section 1.167(a)-7(c) of the Income Tax Regulations specifies that if reserves for book purposes do not correspond with reserves maintained for tax purposes, permanent auxiliary records shall be maintained with the regular books of account reconciling the differences in depreciation for tax and book purposes because of different methods of depreciation, bases, rates, salvage, or other factors.

In this connection, Revenue Ruling 58-306, C.B. 1958-1, 123, was issued holding that `work sheets' maintained by a taxpayer for the purpose of reconciling the book depreciation with the tax depreciation do not meet the requirement of the regulations that permanent auxiliary records be maintained if reserves for book purposes do not correspond with reserves maintained for tax purposes.

It was not the intention of the Service to hold that the use of accountants' `work sheets' or `work papers' would be precluded from acceptability as auxiliary records provided they met the other requirements of section 1.167(a)-7(c) of the regulations that they be permanent in nature, be maintained with the regular books of account and are adequate in reconciling the difference in depreciation for tax and book purposes because of different methods of depreciation bases, rates, salvage, or other factors.

Accordingly, Revenue Ruling 58-306, supra , is modified to hold that accountants' `work sheets' or `work papers' will be considered as meeting the requirement of permanent auxiliary records if they are prepared in the normal course of business, if they are sufficiently complete and accurate to provide a reliable and readily accessible basis for reconciling the regularly maintained books of account and the tax returns; if the original of such `work sheets' or `work papers' are turned over to the taxpayer and associated with his regular books of account; and if they are retained so long as the contents thereof may become material in the administration of any revenue law.