Businesses using electronic storage systems to maintain books and records or ADP systems to produce and process books and records may qualify the entire systems under section 6001.
The IRS district director periodically may test a taxpayer's electronic storage and ADP systems. By actually using the electronic storage system, the district director can evaluate the equipment and software as well as the procedures to prepare, record, transfer, index, store, preserve, retrieve and reproduce electronically stored documents.
Specific rules also apply to taxpayers using electronic storage and ADP systems to maintain books and records.
This capability associates the mandatory sensitivity label (classification level and categories) with users and with information being input/output to the ADP system, including printing the labels on hardcopy output.
In order to support the DAC and MAC policy, an ADP system should provide the following features: Identification, Authentication, Audit, and Trusted Path.
This requirement addresses the correct operation of the ADP system hardware and firmware and is typically satisfied by periodic use of diagnostics software.
Section 7.02 of the procedure states that "[a]n ADP system must not be subject, in whole or in part, to any agreement (such as a contract or license) that would limit or restrict the IRS's access to and use of the ADP system on the taxpayer's premises (or any other place where the ADP system is maintained...." This requirement seemingly conflicts with section 4.02, which does not require that a program or system that creates data be available to process the data unless one of two conditions set forth in section 4.02 are met.
The procedure fails to cite any authority for the proposition that a taxpayer must provide notice of its business decision to replace or upgrade an ADP system. Hence, we question whether the IRS may impose such a requirement in a revenue procedure.
91-59's more restrictive features(2) and addresses new developments in ADP systems. Nonetheless, Rev.
Insurance companies that maintain machine-sensible records within an ADP system to determine losses incurred under Sec.
In addition, an ADP system must not be subject to an agreement that would restrict the Service's use of the system.
The improper selection of sorting criteria is one recurring critique made by the National Taxpayer Advocate (NTA) about various ADP systems
in almost every one of her annual reports to Congress.
"The lag in guidance on ADP systems
frustrates taxpayers and the IRS alike in their mutual desire to promote an efficient examination process," TEI said.
Thus, proposed section 3 not only sets forth general rules on scope, but has specific sections on the types of taxpayers that are covered (including special classes of taxpayers) and a discussion of the general types of ADP systems
and records that are within the scope of the procedure.
558, generally requires the thorough documentation of ADP systems
and the development of audit trails for the tracing of data through the successive stages of processing.