One question that attorneys considering adopting a paperless filing system often have is: are there some types of paper that I have to keep in original form?
The answer is: yes, there are some original papers attorneys are required to keep —at least for now.
Types of documents attorneys might be required to keep
Here are several different types of documents that we tend to think must be stored in paper format.
- Tax returns, and substantiating receipts.
- Promissory notes, especially if needed to cancel a related mortgage.
- Wills signed by the testator and related documents.
- Documents filed in court proceedings.
- Affidavits, especially if used to support pleadings.
- Client files.
These are the types of documents that people THINK need to be preserved in digital format. However, what we believe is required, and what the law requires, are often two different things.
Case Study #1 – Tax Returns
Tax returns do not need to be stored in paper format. After all, many people file their returns electronically—in which case there is no paper original.
Increasingly people are shifting to electronic filing because it’s easier and more efficient. The IRS not only allows electronic filing; they now encourage it.
By the way, if you file your tax return in paper format, the IRS doesn’t store it in that format. (See e.g. Inside the IRS; “Every individual taxpayer’s IRS file is electronically stored by tax year or period…”).
What about backup documentation for your IRS returns, such as receipts?
The IRS doesn’t require you to keep paper copies of your backup documentation either. Curiously, many financial advisors still claim that the IRS will only accept paper documents. For example, here’s advice offered in an article entitled How To Store Your Tax Returns:
“KEEP your tax returns and associated financial documentation… Why keep them? First of all, if you ever get audited… Whatever the situation, you’ll need these in paper form and not digital scans.” (click to read source article)
The author of that article did not bother to look for the IRS bulletin that was issued in 1997. That regulation codified as IRS Rev. Proc. 97–22, is still in effect today. Here’s a summary of the requirements it sets for electronically stored documents (ESD):
- ESD must be “accurate and complete” version of the paper copies (e.g. “the whole truth,” not a partial truth; the ESD must not create doubt about its completeness)
- ESD storage system must have reasonable controls to insure integrity and accuracy (e.g. proper backup)
- ESD must be periodically checked to assure integrity (you must test the backup periodically)
- ESD must produce “legible and readable” printout (you must scan documents at the proper resolution, which will allow them to be read later on)
- ESD must be “legible and readable” when viewed on computer screen (ditto)
- ESD must be under your complete control (i.e. you can’t claim the documents were turned over to someone who won’t give you, or the IRS, access.)
Not surprisingly, the IRS recognizes that in our modern world many companies have digital file storage systems. The IRS requirements for recognizing the validity of electronically stored documents says you can’t use the “my dog ate my homework excuse” as justification for not having the documents that support deductions you claim on your tax return.
The Bottom Line: if your digital file storage system preserves legible copies of your paper documents, and is properly backed up, then the IRS will have no objections to your digital documents. And, if your digital file storage system meets the IRS’s requirements, then it’s almost certainly sufficient for most other situations that you’re likely to be concerned about.
However, there are special cases where you will still need to keep the paper. Or situations where it makes sense to keep paper, regardless of the legal requirements.
Case Study #2 Wills & Promissory Notes
Currently, most states (if not all of them) require that an original paper version of the will be filed to prove the testators’ intent regarding the distribution of estate assets. And this has been a long-standing requirement.
But, it’s also been the case, which sometimes the original will has been lost, and a copy was used to prove the testator’s intent. There are procedures in place to deal with lost wills. Obviously, no attorney wants to have to rely on those procedures.
Still, worst case, if you lose an original will you’ll probably be able to use an accurate copy to probate the will. Obviously, there are no guarantees. So you take special precautions to keep the original will.
And, the same goes for promissory notes. Although there are procedures for canceling a mortgage without having the original promissory note, those procedures create additional cost and take more time. So, here again, you take precautions to make sure the original promissory note is safeguarded.
Case Study #3 Documents filed in court proceedings
The laws of evidence do not require that the original document is filed into the record of a court proceeding. If there’s a dispute about the authenticity of a document, then the attorney offering it will be required to use the “best evidence” at his disposal.
However, disputes about the authenticity of documents are rare. In virtually 99% of the cases, attorneys face no objection when they use a copy of the original document in court.
If you use a copy of the original deposition transcript to impeach a witness, would your opponent object? Probably not. If he was silly enough to object because you offered a copy, would the judge sustain the objection? No, probably not. And the judge would probably be highly displeased for even having to deal with such an objection.
Judges don’t appreciate objections to authenticity unless there are true concerns about the integrity of a document. And deposition transcripts don’t create concern about authenticity. If an attorney is altered the text of a deposition transcript that would be serious fraud. And that fraud would be easily discovered, and quickly result in severe sanctions such as disbarment.
So, there are very few instances where a paper original would be required to prove something in court.
But, one type of document that’s probably best offered in original paper form is an affidavit. Although there may be no strict legal requirement that you offer the original paper document, it’s probably safer to assume you’ll be required to do so. Therefore, it makes sense to keep original paper copies of affidavits that you intend to use in a court proceeding.
Case Study #4 Client Documents
Let’s assume that none of your client documents are subject to any of the paper original requirements listed above (including the non-mandatory, but “highly suggested” categories). Are you free to store the remaining category of paper documents in digital format and discard the paper originals?
The answer is almost certainly, yes.
However, most attorneys will still worry about whether they are truly permitted to discard their clients’ paper files.
First, if you are permitted to discard client files you obviously have to do so in a way that preserves client confidences, and sensitive information. That means you either have to return it to the client or shred it.
The best recipe for creating peace of mind regarding your ability to (properly) discard client files is to formally disclose your intention in your written client engagement agreement. If every client agrees in writing to allow you to store their files in electronic format, then you’ll have no worries.
Even if you don’t have a comprehensive digital file system, it makes sense to start getting clients to agree to allow you to manage their files in that way now. If you get your client to agree now, then when you have implemented the process you won’t have to take the time to seek their approval.
You want a client engagement agreement that allows you to discard paper on an ongoing basis for active files, and that allows you to discard any residual paper left in a closed file or one that’s about to be closed.
There are some of the key provisions that most attorneys will want to build into their client engagement agreements.
For example, you’ll want expressly disclose that:
- You’ll be scanning all files to PDF format
- You’ll store digital files in the format that you receive them in (e.g. native format)
- You will destroy all paper documents unless the client specifies in writing that they want the paper originals sent to them (in which case they pay for the delivery and all associated costs)
- You’ll provide copies of the digital records in digital format upon written request.
- A PDF version of the client agreement will be considered valid for any purpose, including for proving the terms of engagement in a court or administrative proceeding.
Once you start getting your clients to agree to your digital filing system, you’ll have no worries. Then your only issue will be with the few documents that are truly required to be kept in paper format, or those which you want to keep in paper format because it is likely to make your life easier.
And don’t be led astray by “advisors” misunderstand the papers attorneys are required to keep, mostly because they haven’t examined the actual legal requirements.
Quick Action Step
If you want to learn more you can get started right away with our free 1-page guide called 5 Keys to Creating a Paperless Law Office.