Record Keeping

ARTICLE: Manage Records More Efficiently
VIDEO: Learn how to better manage your firm’s business records by creating a record retention program. (Nov. 7, 2016, OAR Buzz)

Record Keeping: It’s for your protection

Published by OAR’s Legal Services Group

Well-organized records make your life a whole lot easier–whether it’s responding to an inquiry from the Ohio Division of Real Estate…the IRS–or even the attorney representing a disgruntled client or customer.

Well-organized records make your life a whole lot easier–whether it’s responding to an inquiry from the Ohio Division of Real Estate…the IRS–or even the attorney representing a disgruntled client or customer.

The question always arises, however, about what you should keep and what can be thrown away. To assist in that regard, the Ohio Association of REALTORS has assembled the following information about the records real estate brokers should retain and how long they should be kept.

We’ve asked experts to offer recordkeeping guidelines concerning license law requirements, taxation and the liability arena. Remember, if you have any further questions or need additional assistance, you are advised to contact an attorney and/or tax professional.

“The bottom line is that the primary reason that (you) need a good Record Retention Policy is that (you) do not have unlimited space to store documents and information indefinitely,” notes Jack Burtch, OAR’s legal counsel with Baker & Hostetler. Adding that a Policy “will insure that (you) keep those documents that are important from a liability standpoint and eliminate those documents that most likely will have no relevance in the event of subsequent litigation.”

Ohio Real Estate Laws & Rules

According to Section 4735.18(A)(24) of the Ohio Revised Code, a licensee can be found in violation for:

“Having failed to keep complete and accurate records of all transactions for a period of 3 years from the date of the transaction, such records to include copies of listing forms, earnest money receipts, offers to purchase and acceptances of them, and any records of receipts and disbursements of all funds received by him as broker and incident to his transactions as such, and any other instruments or papers related to the performance of any of the acts set forth in the definition of a real estate broker.”

There are two key areas where REALTORS probably don’t comply, particularly in understanding the Division of Real Estate’s interpretation of the aforementioned section.

A licensee must keep all offers on a property, even if not accepted.

A licensee must keep all agency disclosure forms that a buyer signs, even if he/she never makes an offer or buys a property. For example, a buyer calls and inquires about a property, signs a disclosure form, is shown the home and is then never seen/heard of again. You must keep that form for the 3-year period. Peg Ritenour,

OAR’s vice president of legal services, recommends that in these situations, the forms be retained in a “no further action” (or “dead lead”) file.

“Another key point as it pertains to Ohio’s real estate law is that it doesn’t stipulate keeping the ‘original’ form,” Ritenour said. “It only states that you have to keep copies.”

She notes that scanned copies would be acceptable, “if they can be printed and are clearly legible.”

Legal & Taxing Matters

Besides license law, you need to retain records in case you’re faced with an audit or lawsuit.

The relevance of the records you keep, especially with respect to liability, is often determined by the statute of limitations for a particular cause of action. For example, a cause of action for fraud in Ohio has a four-year statute of limitations; a cause of action for negligence and personal injury has a two-year statute of limitations; and a cause of action for breach of contract has a 15-year statute of limitations if the contract is written and six years if the contract is oral, Burtch notes.

“Regardless of the record retention plan, once litigation is filed, relevant documents should not be destroyed even if the records retention policy provide for their destruction during the course of the litigation,” Burtch says.

“These records must be maintained if they are relevant to the issues in the lawsuit, or otherwise serious sanctions can be imposed by the Court.”

Similar rules apply to retaining tax/financial records. According to information prepared by the Internal Revenue Service, you must keep records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out.

The period of limitations is the period of time in which you can amend your return to claim a credit or refund, or the IRS can assess additional tax. The graph below contains the period of limitations that applies to income tax returns. Unless otherwise stated, the years refer to the period after the return was filed. Returns filed before the due date are treated as filed on the due date.

In the following situations … The period of limitations is:
1. You owe additional tax and situations (2), (3) and (4), below, do not apply to you … 3 years

2. You do not report income that you should report, and it is more than 25% of the gross income shown on your return … 6 years

3. You file a fraudulent income tax return … No limit

4. You do not file a return … No limit

5. You file a claim for credit or refund after you file your return … Later of: 3 years, or 2 years after the tax was paid

6. Your claim is due to a bad debt deduction … 7 years

7. Your claim is due to a loss from worthless securities … 7 years

What follows is a more comprehensive record retention schedule, prepared by the Ohio Society of CPA’s.

Retention Period … Number of Years
Accident reports/claims (settled cases) … 7 yrs.
Accounts payable ledgers/schedules … 7 yrs.
Accounts receivables ledgers/schedules … 7 yrs.
Audit reports of accountants permanently
Bank reconciliations … 1 yr.
Capital stock & bond records; ledgers, transfer registers, stubs showing issues, record of interest coupons, options, etc. … permanently
Cash books  … permanently
Charts of accounts  … permanently
Checks (canceled but see exception below)  … 7 yrs.
Checks (canceled for important payments, i.e. — taxes, purchases of property, special contracts, etc./checks should be filed with the papers pertaining to the underlying transaction)  … permanently
Contracts and leases (expired)  … 7 yrs.
Contracts and leases still in effect  … permanently
Correspondence (routine) with customers/vendors  … 1 yr.
Correspondence (general) 3 yrs.
Correspondence (legal and important matters)  … permanently
Deeds, mortgages and bills of sale  … permanently
Depreciation schedules  … permanently
Duplicate deposit slips  … 1 yr.
Employee personnel records (after termination)  … 3 yrs.
Employment applications  … 3 yrs.
Expense analysis and expense distribution schedules  … 7 yrs.
Financial statements (end-of-year, other months optional)  … permanently
General and private ledgers (and end-of-year trial balances)  … permanently
Insurance policies (expired)  … 3 yrs.
Insurance records, current accident reports, claims, policies, etc.  … permanently
Internal audit reports (in some situations, longer retention periods may be desirable)  … 3 yrs.
Internal reports (miscellaneous)  … 3 yrs.
Inventories of products, materials and supplies  … 7 yrs.
Invoices to customers  … 7 yrs.
Invoices from vendors  … 7 yrs.
Journals  … permanently
Minute books of directors and stockholders, including by-laws and charter  … permanently
Notes receivable ledgers/schedules  … 7 yrs.
Option records (expired)  … 7 yrs.
Payroll records and summaries, including payments to pensioners  … 7 yrs.
Petty cash vouchers  … 3 yrs.
Physical inventory tags  … 3 yrs.
Plant cost ledgers  … 7 yrs.
Property appraisals by outside appraisers  … permanently
Property records including costs, depreciation reserves, end-of-year trial balances, depreciation schedules, blueprints and plans  … permanently
Purchase orders (except purchasing department copy)  … 1 yr.
Purchase orders (purchasing department copy)  … 7 yrs.
Receiving sheets  … 1 yr.
Requisitions  … 1 yr.
Sales records  … 7 yrs.
Savings bond registration records of employees  … 3 yrs.
Scrap and salvage records (inventories, sales, etc.)  … 7 yrs.
Stenographer’s notebooks  … 1 yr.
Stock and bond certificates (canceled)  … 7 yrs.
Stockroom withdrawal forms  … 1 yr.
Subsidiary ledgers  … 7 yrs.
Tax returns and worksheets, revenue agents’ reports and other documents relating to determination of income tax liability  … permanently
Time books  … 7 yrs.
Trade mark registrations  … permanently
Voucher register and schedules  … 7 yrs.
Vouchers for payments to vendors, employees, etc. (includes allowances and reimbursement of employees, officers, etc. for travel and
entertainment expenses)  … 7 yrs.

For more information on IRS record keeping requirements, as well as on related tax issues,