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Save electronic copies of checks needed for tax return
During an IRS audit, what happens when the IRS auditor asks for a canceled check to substantiate payment of an expense?
With the Check 21 Act that went into effect in 2004, most consumers now receive scanned images of their canceled checks in bank statements rather than the actual canceled checks. In some cases, even scanned images are not routinely provided.
Usually the IRS accepts a copy of the canceled check, so you should retain the copies of tax-relevant checks that accompany your bank statements. Of course, your bank normally has quick access to these copies, too.
In rare instances, the IRS may demand more than the copy of the canceled check. In that case, you can request a substitute check from the bank. A substitute check is legally the same as the original check if it accurately represents the information on the original check and includes the following statement: “This is a legal copy of your check. You can use it the same way you would use the original check.”
The IRS generally will accept photocopies of substitute checks as proof of payment. However, if the IRS auditor suspects that the copy is not genuine, you may be asked to order the actual substitute check from the bank. Under the Check 21 Act, banks are not required to provide substitute checks and may charge for the service.
If you have online access to bank statements, you should download and save the electronic copy of the statements and checks as a backup.
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The technical information here is necessarily brief. No final conclusion on these topics should be drawn without further review and consultation. Please be advised that, based on current IRS rules and standards, the information contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty assessed by the IRS.
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