IRS Auditors Request QuickBooks Data File

There has been such a change in how accounting is handled for small businesses over the last two decades.  The majority of small businesses today use QuickBooks as their primary accounting software package.  Well that has not gone unnoticed by the IRS.

The IRS has been training revenue agents on how to use QuickBooks, and instructing their field agents to request your QuickBooks company file as a part of their audit. At first, sheer panic overcame me, but I soon realized this is just another step in our small business evolution.  See our upcoming blog post.

Internal Revenue Code§ 6001 requires a taxpayer to maintain books and records that substantiate income, deductions, and credits, including adequate records to substantiate deductions claimed as trade or business expenses. These requirements are not new, but we seem to have interpretated them to only apply to hard copy records.  That is not the case.  Electronic information has never been exempt from these requirements.

To clearly illustrate this point, Revenue Procedure 1998-25 does not exempt a taxpayer from providing electronic records, if such records exist.

There are many concerns with providing QuickBook data files to the IRS.  The most notable are that these data files include audit history that would indicate any changes to the data file and of particular concern is that QuickBooks, unlike historical “real” accounting systems, do not “close” accounting periods.  This means that when we turnover the data file to the IRS we are not only providing infomration on the year under examination, but for all years maintained in QuickBooks.

Whether we like it or not, the IRS has great standing that will allow them access to these electronic records.  As more accounting solutions have entered the market place, the business community has lost some of the value that the accounting profession can bring to the accounting process.  In the long run, this recent move by the IRS will force us to stregnthen our accounting  processes and create a more collabortive environment between us and our clients.

If you have any questions regarding these recent changes and the potential impact on your accounting systems, please do not hesitate to contact us.


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