The Check Clearing
for the 21st Century Act (Check 21) became effective on October 28, 2004. What
this means is most consumers no longer receive canceled checks with their statements.
Check 21 allows your financial institution to truncate your checks and create
an electronic negotiable instrument called a substitute check. Your bank then
destroys your original check.
I
have received numerous inquiries about how to prove an expense to the IRS in order
to be entitled to a tax deduction or credit. The short answer is you will need
to retain your bank statements, just as you have always done. Keeping a detailed
check register will help you know which statement contains the check you need.
The only difference is you now have a substitute document rather than the document
itself.
The IRS will accept
bank statements that contain images of canceled checks and/or substitute checks
as proof of deductions or credits. To be used as proof, an account statement must
show the check number, amount, payee's name and the date the check was posted.
However, if the IRS is suspicious that the image statement is not genuine, you may
be requested to order the actual substitute check from your bank. This will be
a rare instance, possibly only if you are audited.
Financial
institutions were not immediately forced to comply with the new electronic system.
However, most have already done so. If your financial institution has not fully
complied with Check 21, you may receive a mixture of canceled checks and substitute
checks with your statement. If you receive image statements (pictures of several
checks on a single page), you also may notice that some of the pictures are of
substitute checks.
If you
do all your banking and bill paying online, the same rules apply. However, we
strongly suggest that you download and print your bank statements at the end of
the year. You should maintain them as a part of your tax records for that year.
For more information contact The Henssler Financial Group Tax & Accounting Division at (770) 428-4025.
