If you are contacted by the IRS about an audit, they may ask you to hand over your QuickBooks company data file. This comes from Revenue Procedure 98-25:

“All machine-sensible records retained by a taxpayer, whether retained under the provisions of a record retention limitation agreement or for other reasons, may be used for computer assisted auditing techniques…”  (IRS webpage)

There has been a lot of talk about this on some LinkedIn discussions and accounting blogs I follow. Reportedly, the IRS has purchased 1,500 – 2,000 QuickBooks licenses and is training auditors in its use.

There are a couple areas of concern for small businesses about this:

  • If your QuickBooks records are a mess, or don’t add up to what was reported on a tax return, that could spell trouble during the audit.
  • Most taxpayers don’t want auditors fishing around in years other than the targeted year. But with QuickBooks, there is no way to confine the file to one particular year.
  • A few ways you can help protect yourself in this scenario:

    1. Have clean books to begin with. Get a CPA or professional bookkeeper to review your books and help you make any course corrections. Your QuickBooks data should conform to good accounting principles. Do this before you file your next tax return.

    2. Run the QuickBooks Cleanup command on your data before you give it to the auditors, and specify an appropriate cleanup date. For example, if you are being audited for 2008, run the Cleanup through Dec. 31, 2007. That should at least close the door to the auditors having access to your transaction records before the 2008 audit period.

    3. Consult with a tax accountant if you get audited.

    What are your thoughts on the IRS having access to taxpayers’ QuickBooks data?

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    4 thoughts on “Getting Audited? They Might Want Your QuickBooks File

    1. I don’t like it. Small businesses have enough to worry about and are getting hit left and right by BIG GOVERNMENT. The government is targeting small businesses to get extra taxes from so they can continue their BIG spending. The government needs to clean up their act before picking on the little guy.

      Reply
    2. I don’t think anyone is pleased about it. I would guess, however, that if small businesses were targeted, it would be because they are more likely to make mistakes in their accounting and taxes. But you are certainly entitled to your political opinion!

      Reply
    3. Pingback: What if the IRS Wants My QuickBooks File? | QuickBooks and Your Business

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