Overview: IRS QuickBooks Audit
In mid 2010 it became apparent that
the IRS intended to request QuickBooks files in many of their business
audits. Intuit, the publisher of QuickBooks, indicated that the sale
of about 2,000 copies of QuickBooks to the IRS was through a reseller, not
directly through Intuit.
The IRS noted that IRS examiners
were being trained in the use of QuickBooks.
The Bigger Problem -- Giving The IRS More Than
They Are Asking For
It has been clearly established that the IRS can look at
electronic records.
In traditional IRS examinations, the IRS narrows the
scope to certain portions of the tax return. A good tax
professional that is representing the audited taxpayer will not give the IRS
more than they are asking for. With electronic records
the IRS can more easily expand the audit to cover all transactions within
the year.
Side Note: Can The IRS Do This?
Legally: Yes. Realistically: Maybe - Maybe Not. There are
people in the IRS smart enough to use QuickBooks, but will the IRS spend the
resources to train them? Also, if the IRS has only purchased 2010 versions
of QuickBooks, they may not be able to open files used by more recent
versions of QuickBooks.
However, before the 2012 version of QuickBooks, if the
IRS requested the 2010 QuickBooks records, you might also end up giving the
IRS the 2009, 2011 and 2012 records. Thus, instead of auditing one
year, they could snoop around in three other years. This can
increase the cost of the IRS examination by a factor of 3! There is
a solution to this -- the Period Copy.
The QuickBooks Period Copy
The QuickBooks Period Copy allows the user to create a
file that has detail for only one year. Transactions before the
requested year are represented by harmless summary journal entries.
Transactions after the requested year are eliminated.
The Period Copy is available in QuickBooks Accountant. To
use Period Copy within the Accountant edition choose File - Utilities -
Condense Data - "Transactions outside of a data range"
If you do not have the QuickBooks Accountant edition, you
can call us. We can prepare a Period Copy as a service. 720-493-4804
Resources
IRS FAQ
"Use of Electronic Accounting Software Records; Frequently Asked Questions
and Answers"
IRS
Memorandum For Examination Area Directors of the Small Business /
Self-Employed Division (SBSE): "Guidance on Usage of Electronic Accounting
Software Records"
IRS
Headliner Volume 303: "IRS Accepts Taxpayer Accounting Records in Electronic
Format for Small Business/Self-employed Examinations"
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