Rp 97-22

Part III. Administrative, Procedural, and Miscellaneous
Tax on Certain Imported
Substances; Notice of
Determination
Notice 97–22
This notice announces a determination, under Notice 89–61, 1989–1 C.B.
717, that the list of taxable substances in
§ 4672(a)(3) will be modified to include
diglycidyl ether of bisphenol-A. This
modification is effective April 1, 1992.
Background
Under § 4672(a), an importer or exporter of any substance may request that
the Secretary determine whether that
substance should be listed as a taxable
substance. The Secretary shall add the
substance to the list of taxable substances in § 4672(a)(3) if the Secretary
determines that taxable chemicals constitute more than 50 percent of the
weight, or more than 50 percent of the
value, of the materials used to produce
the substance. This determination is to
be made on the basis of the predominant
method of production. Notice 89–61 sets
forth the rules relating to the determination process.
Determination
On February 24, 1997, the Secretary
determined that diglycidyl ether of
bisphenol-A should be added to the list
of taxable substances in § 4672(a)(3),
effective April 1, 1992.
The rate of tax prescribed for
diglycidyl ether of bisphenol-A, under
§ 4671(b)(3), is $7.08 per ton. This is
based upon a conversion factor for benzene of 0.459, a conversion factor for
propylene of 0.494, a conversion factor
for chlorine of 0.833, and a conversion
factor for sodium hydroxide of 0.705.
The petitioner is Dow Chemical Company, a manufacturer and exporter of
this substance. No material comments
were received on this petition. The following information is the basis for the
determination.
HTS number: 3907.3
CAS number: 025085–99–8
Diglycidyl ether of bisphenol-A
(DGEBA) is derived from the taxable
chemicals benzene, propylene, chlorine,
and sodium hydroxide and produced
predominantly from epichlorohydrin and
bisphenol-A via a two-step reaction.
The stoichiometric material consumption formula for this substance is:

2 C6H6 (benzene) + 4 C3H6 (propylene) + 4 Cl2
(chlorine) + 6 NaOH (sodium hydroxide) + 2 O22
(oxygen)
-----.
(CH 3 ) 2 C(C 6 H 4 OC 3 H 5 0) 2
(DGEBA) + CH3COCH3 (acetone) + 2 HCl
(hydrogen chloride) + 6 NaCl (sodium chloride) +
5 H2O (water)

Diglycidyl ether of bisphenol-A has
been determined to be a taxable substance because a review of its
stoichiometric material consumption formula shows that, based on the predominant method of production, taxable
chemicals constitute 92.95 percent by
weight of the materials used in its
production.
The principal author of this notice is
Ruth Hoffman, Office of Assistant Chief
Counsel (Passthroughs and Special Industries). For further information regarding this notice contact Ruth Hoffman on
(202) 622–3130 (not a toll-free number).

except for farmers and wage-earners,
any person subject to income tax, or any
person required to file a return of information with respect to income, must
keep such books and records, including
inventories, as are sufficient to establish
the amount of gross income, deductions,
credits, or other matters required to be
shown by that person in any return of
such tax or information.
.03 Section 1.6001–1(e) provides that
the books or records required by § 6001
must be kept available at all times for
inspection by authorized internal revenue officers or employees, and must be
retained so long as the contents thereof
may become material in the administration of any internal revenue law.
SECTION 3. SCOPE

26 CFR 601.105 Examination of returns and
claims for refund, credits or abatement; determination of correct tax liability.
(Also Part I, Section 6001; 1.6001–1.)

Rev. Proc. 97–22
SECTION 1. PURPOSE
This revenue procedure provides
guidance to taxpayers that maintain
books and records by using an electronic storage system that either images
their hardcopy (paper) books and
records, or transfers their computerized
books and records, to an electronic
storage media, such as an optical disk.
Records maintained in an electronic
storage system that complies with the
requirements of this revenue procedure
will constitute records within the meaning of § 6001 of the Internal Revenue
Code.
SECTION 2. BACKGROUND
.01 Section 6001 provides that every
person liable for any tax imposed by the
Code, or for the collection thereof, must
keep such records, render such statements, make such returns, and comply
with such rules and regulations as the
Secretary may from time to time prescribe. Whenever necessary, the Secretary may require any person, by notice
served upon that person or by regulations, to make such returns, render such
statements, or keep such records, as the
Secretary deems sufficient to show
whether or not that person is liable for
tax.
.02 Section 1.6001–1(a) of the Income Tax Regulations provides that,

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.01 This revenue procedure applies to
taxpayers who maintain books and
records using an ‘‘electronic storage
system.’’ An electronic storage system is
a system to prepare, record, transfer,
index, store, preserve, retrieve, and reproduce books and records by either:
(1) electronically imaging hardcopy
documents to an electronic storage media; or
(2) transferring
computerized
books and records to an electronic storage media using a technique such as
‘‘COLD’’ (computer output to laser
disk), which allows books and records
to be viewed or reproduced without the
use of the original program.
.02 The requirements of this revenue
procedure pertain to all matters under
the jurisdiction of the Commissioner of
Internal Revenue including, but not limited to, income, excise, employment,
and estate and gift taxes, as well as
employee plans and exempt organizations.
.03 A taxpayer’s use of a third party
(such as a service bureau or timesharing service) to provide the taxpayer
with an electronic storage system for its
books and records does not relieve the
taxpayer of the responsibilities described
in this revenue procedure.
.04 Except as otherwise provided in
this revenue procedure, all requirements
of § 6001 that apply to hardcopy books
and records apply as well to books and
records that are stored electronically
pursuant to this revenue procedure.

SECTION 4. ELECTRONIC
STORAGE SYSTEM
REQUIREMENTS
.01 General Requirements.
(1) An electronic storage system
must ensure an accurate and complete
transfer of the hardcopy or computerized
books and records to an electronic storage media. The electronic storage system must also index, store, preserve,
retrieve, and reproduce the electronically
stored books and records.
(2) An electronic storage system
must include:
(a) reasonable controls to ensure
the integrity, accuracy, and reliability of
the electronic storage system;
(b) reasonable controls to prevent and detect the unauthorized creation of, addition to, alteration of, deletion of, or deterioration of electronically
stored books and records;
(c) an inspection and quality assurance program evidenced by regular
evaluations of the electronic storage system including periodic checks of electronically stored books and records;
(d) a retrieval system that includes an indexing system (within the
meaning of section 4.02 of this revenue
procedure); and
(e) the ability to reproduce legible and readable hardcopies (within the
meaning of section 4.01(3) of this revenue procedure) of electronically stored
books and records.
(3) All books and records reproduced by the electronic storage system
must exhibit a high degree of legibility
and readability when displayed on a
video display terminal and when reproduced in hardcopy. The term ‘‘legibility’’ means the observer must be able to
identify all letters and numerals positively and quickly to the exclusion of all
other letters or numerals. The term
‘‘readability’’ means that the observer
must be able to recognize a group of
letters or numerals as words or complete
numbers. The taxpayer must ensure that
the reproduction process maintains the
legibility and readability of the electronically stored document.
(4) The information maintained in
an electronic storage system must provide support for the taxpayer’s books
and records (including books and
records in an automated data processing
system). For example, the information
maintained in an electronic storage system and the taxpayer’s books and
records must be cross-referenced in a

manner that provides an audit trail between the general ledger and the source
document(s).
(5) For each electronic storage system used, the taxpayer must maintain,
and make available to the Service upon
request, complete descriptions of:
(a) the electronic storage system,
including all procedures relating to its
use; and
(b) the indexing system (see section 4.02 of this revenue procedure).
(6) At the time of an examination,
or for the tests described in section 5 of
this revenue procedure, the taxpayer
must:
(a) retrieve and reproduce (including hardcopies if requested) electronically stored books and records; and
(b) provide the Service with the
resources (e.g., appropriate hardware
and software, personnel, documentation,
etc.) necessary to locate, retrieve, read,
and reproduce (including hardcopies)
any electronically stored books and
records.
(7) An electronic storage 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
Service’s access to and use of the
electronic storage system on the taxpayer’s premises (or any other place where
the electronic storage system is maintained), including personnel, hardware,
software, files, indexes, and software
documentation.
(8) The taxpayer must retain electronically stored books and records so
long as their contents may become material in the administration of the Internal Revenue laws under § 1.6001–1(e).
(9) The taxpayer may use more
than one electronic storage system. In
that event, each electronic storage system must meet the requirements of this
revenue procedure. Electronically stored
books and records that are contained in
an electronic storage system with respect to which the taxpayer ceases to
maintain the hardware and the software
necessary to satisfy the conditions of
this revenue procedure will be deemed
destroyed by the taxpayer, unless the
electronically stored books and records
remain available to the Service in conformity with this revenue procedure.
(10) Taxpayers may use reasonable
data compression or formatting technologies as part of their electronic storage system so long as the requirements
of this revenue procedure are satisfied.

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.02 Requirements of an Indexing System.
(1) For purposes of this revenue
procedure, an ‘‘indexing system’’ is a
system that permits the identification
and retrieval for viewing or reproducing
of relevant books and records maintained in an electronic storage system.
For example, an indexing system might
consist of assigning each electronically
stored document a unique identification
number and maintaining a separate database that contains descriptions of all
electronically stored books and records
along with their identification numbers.
In addition, any system used to maintain, organize, or coordinate multiple
electronic storage systems is treated as
an indexing system under this revenue
procedure. The requirement to maintain
an indexing system will be satisfied if
the indexing system is functionally comparable to a reasonable hardcopy filing
system. The requirement to maintain an
indexing system does not require that a
separate electronically stored books and
records description database be maintained if comparable results can be
achieved without a separate description
database.
(2) Reasonable controls must be
undertaken to protect the indexing system against the unauthorized creation of,
addition to, alteration of, deletion of, or
deterioration of any entries.
.03 Recommended Practices. The
implementation of records management
practices is a business decision that is
solely within the discretion of the taxpayer. Records management practices
may include the labeling of electronically stored books and records, providing a secure storage environment, creating back-up copies, selecting an off-site
storage location, retaining hardcopies of
books or records that are illegible or
that cannot be accurately or completely
transferred to an electronic storage system, and testing to confirm records
integrity.
SECTION 5. DISTRICT DIRECTOR
TESTING
.01 The District Director may periodically initiate tests of a taxpayer’s
electronic storage system. These tests
may include an evaluation (by actual
use) of a taxpayer’s equipment and
software, as well as the procedures used
by a taxpayer to prepare, record, transfer, index, store, preserve, retrieve, and
reproduce electronically stored documents. In some instances, the District

Director may choose to review the internal controls, security procedures, and
documentation associated with the taxpayer’s electronic storage system.
.02 The tests described in section
5.01 of this revenue procedure are not
an ‘‘examination,’’ ‘‘investigation,’’ or
‘‘inspection’’ of the books and records
within the meaning of § 7605(b), or a
prior audit for purposes of § 530 of the
Revenue Act of 1978, 1978–3 (Vol.1)
C.B. 119, as amended by § 1122 of the
Small Business Job Protection Act of
1996, because these tests are not directly
related to the determination of the tax
liability of a taxpayer for a particular
taxable period.
.03 The District Director must inform
the taxpayer of the results of any tests
under this section.
SECTION 6. COMPLIANCE
.01 A taxpayer’s electronic storage
system that meets the requirements of
this revenue procedure will be treated as
being in compliance with the
recordkeeping requirements of § 6001
and the regulations thereunder.
.02 A taxpayer’s electronic storage
system that fails to meet the requirements of this revenue procedure may be
treated as not being in compliance with
the recordkeeping requirements of
§ 6001 and the regulations thereunder.
See section 9 of this revenue procedure
for applicable penalties. However, even
though a taxpayer’s electronic storage
system fails to meet the requirements of
this revenue procedure, the penalties
described in section 9 of this revenue
procedure may not apply if the taxpayer
maintains its original books and records,
or maintains its books and records in
micrographic form in conformity with
Rev. Proc. 81–46, 1981–2 C.B. 621.
SECTION 7. DESTRUCTION AND
DELETION OF ORIGINAL BOOKS
AND RECORDS
This revenue procedure permits the
destruction of the original hardcopy
books and records and the deletion of
the original computerized records (other
than ‘‘machine-sensible’’ records required to be retained by Rev. Proc.
91–59, 1991–2 C.B. 841), after the
taxpayer:

(1) has completed its own testing
of the electronic storage system that
establishes that hardcopy or computerized books and records are being reproduced in compliance with all the provisions of this revenue procedure; and
(2) has instituted procedures that
ensure its continued compliance with all
the provisions of this revenue procedure.

Attention: CP:EX
Internal Revenue Service
1111 Constitution Ave., NW
Washington, DC 20224
.02 Questions regarding the application of this revenue procedure to a
specific factual situation should be directed to the appropriate District Director.

SECTION 8. IMPACT ON
MACHINE-SENSIBLE RECORDS

SECTION 11. PAPERWORK
REDUCTION ACT

The provisions of this revenue procedure regarding electronically stored
books and records do not relieve taxpayers of the responsibility of retaining any
other books and records required to be
retained under § 6001. Such other
books and records may include
‘‘machine-sensible’’ records required to
be retained by Rev. Proc. 91–59 in
connection with the taxpayer’s use of an
automatic data processing (ADP) system.

The collections of information contained in this revenue procedure have
been reviewed and approved by the
Office of Management and Budget in
accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control
number 1545–1533.
An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information displays a valid control number.
The collections of information are in
sections 4 and 5 of this revenue procedure. This information is required to
ensure that records maintained in an
electronic storage system will constitute
records within the meaning of § 6001.
The collections of information are mandatory for a taxpayer who chooses to
electronically store its books and
records. The likely respondents are individuals, state or local governments,
farms, business or other for-profit institutions, federal agencies or employees,
nonprofit institutions, and small businesses or organizations.
The estimated total annual recordkeeping burden is 1,000,400 hours.
The estimated annual burden per
recordkeeper will vary from 20 hours to
22 hours, depending on individual circumstances, with an estimated average
of 20 hours. The estimated number of
recordkeepers is 50,000.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal revenue law. Generally tax returns
and tax return information are confidential, as required by 26 U.S.C. 6103.

SECTION 9. PENALTIES
The District Director may issue a
Notice of Inadequate Records pursuant
to § 1.6001–1(d) if the taxpayer’s books
and records are available only as electronically stored books and records and
the taxpayer’s electronic storage system
fails to meet the requirements of this
revenue procedure. Taxpayers whose
electronic storage system fails to meet
the requirements of this revenue procedure may also be subject to applicable
penalties under subtitle F of the Code,
including the § 6662(a) accuracy-related
civil penalty and the § 7203 willful
failure criminal penalty.
SECTION 10. INTERNAL REVENUE
SERVICE OFFICE CONTACT
.01 Questions regarding this revenue
procedure should be directed to the
Office of the Assistant Commissioner
(Examination). The telephone number
for this office is (202) 622–5480 (not a
toll-free number). Written questions
should be addressed to: Assistant Commissioner (Examination)

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