Where’s My Canceled Check?: A Review of the Basics

By Robert Moïse, CPA, Charleston, S.C.

Editor: Valrie Chambers, Ph.D., CPA

Practice & Procedures

The Check Clearing for the 21st Century Act (Check 21 Act), P.L. 108-100, was signed into law on Oct. 28, 2003, and went into effect on Oct. 28, 2004. For most consumers, this means that they now receive scanned images of their canceled checks in bank statements rather than the actual canceled checks; in some cases, they are not receiving even those. However, during an IRS audit, some IRS requests for information insist on substantiating expenditures with front-and-back copies of canceled checks.


The Check 21 Act enables banks to handle more checks electronically so they can process them more quickly and efficiently (Check 21 Act, §2). Moving paper checks is costly and slow. When a paper check is first deposited or cashed at a bank, a picture of the front and back of the check is captured and, from that point on, the image is transmitted electronically. With agreements between banks and their customers, except where the banks have agreed to provide canceled checks in their statements, the Check 21 Act permits the banks to provide either the original check or a “substitute check” (defined below) “or, by agreement, information relating to the original check (including data taken from the MICR [magnetic ink character recognition] line of the original check or an electronic image of the original check), whether with or without subsequent delivery of the original paper check” (Check 21 Act, §3(18)). After doing this, the bank generally is allowed to destroy the original check as provided in its customer agreement.

What happens when the IRS conducts an examination and asks for a canceled check to substantiate payment of an expense? Usually, as it has been doing for many years, the IRS accepts a copy of the canceled check. So taxpayers must take extra care to protect the copies of checks that may accompany their bank statements. Of course, the bank normally has quick access to copies of these checks. In rare instances where the IRS demands more than the copy of the canceled check included in the bank statement, taxpayers can request a substitute check from the bank. A substitute check is legally the same as the original check if it accurately represents the information on the original check and includes the following statement: “This is a legal copy of your check. You can use it the same way you would use the original check” (Check 21 Act, §§4(b)(2), 4(e)).

If a taxpayer receives a substitute check that is not legally the same as the original check and suffers a loss related to the substitute check, the Check 21 Act provides the taxpayer with a special procedure that can be used for restitution (Check 21 Act, §6(a)).

The IRS has indicated that it generally will accept photocopies of substitute checks as proof of payment. However, as has been IRS policy for copies of canceled original checks, if an IRS auditor suspects that the copy is not genuine, he or she may ask the taxpayer to order the actual substitute check from the bank. The taxpayer’s general recordkeeping obligations under the tax law are satisfied by keeping the bank statements.

Note that the Check 21 Act procedure is far different from the electronic check conversion process that has been in use for many years, in which a bank customer’s check is converted to an Automated Clearing House (ACH) debit. The money is taken out of an account, or the taxpayer may authorize an electronic check and pay a bill by telephone or online. Customers’ rights using ACH debits and electronic checks are far different from their rights under the Check 21 Act, since the only record of an electronic check may be the notations on the bank statement.

The key points to remember with the Check 21 Act are:

  • If a taxpayer is receiving canceled checks now, that will continue until the bank sends notification to the contrary.
  • If taxpayers have online access to bank statements, they should download and save the electronic copy of the statements and checks as a backup.
  • Banks are not required to keep original checks for any specific length of time, and the Check 21 Act does not add any retention requirement.
  • Banks are required to notify customers if they change the way they have been providing canceled checks or copies.
  • Banks may provide a substitute check but are not required to do so. Customers need to understand what their bank will provide.
  • Even if the bank does provide a substitute check with the proper language, it may charge for this service.


Valrie Chambers is a professor of accounting at Texas A&M University–Corpus Christi in Corpus Christi, Texas. Robert Moïse is a partner with WebsterRogers LLP in Charleston, S.C. Prof. Chambers and Mr. Moïse are members of the AICPA Tax Division’s IRS Practice and Procedures Committee. For more information about this column, contact Prof. Chambers at valrie.chambers@tamucc.edu.

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