The Internal Revenue Service has started accepting taxpayer records in electronic format from small businesses using Intuit’s QuickBooks and Sage’s Peachtree accounting software for audits and examinations.
Business owners and tax professionals have been advocating that the IRS begin accepting taxpayer records in electronic format instead of continuing to use traditional paper books and records for audits, the IRS noted. The IRS Small Business/Self-Employed Examination Division is responding to those wishes expressed in tax practitioner focus group interviews conducted at the 2008 Nationwide Tax Forums and from other stakeholders.
The IRS has recently completed training for revenue agents on QuickBooks Premier Accountant Edition 2010 software. Approximately 1,100 agents were trained and are now being encouraged to request and accept taxpayers’ QuickBooks files, as appropriate. The IRS is also able to accept electronic records from Peachtree accounting software.
Electronic files should be provided on a CD, DVD, or flash/jump drive to ensure security of the files. E-mail should not be used to transmit the electronic records.
The IRS said that obtaining a taxpayer’s accounting records in electronic format provides significant advantages, including reducing the burden on taxpayers because taxpayers don’t have to print records stored electronically. The electronic files also provide a complete set of the taxpayer’s accounting records, decreasing the number of items included in the initial document request and follow-up requests. The IRS said the electronic accounting records also increase the efficiency of a revenue agent’s analysis and testing of the books and records, resulting in faster audit resolution.
The legal authority for requesting a taxpayer’s QuickBooks backup files and accounting records in electronic format is based on IRC Section 6001, Regulation 1.6001-1(a) and -1(e), Revenue Ruling 71-20 and Revenue Procedure 98-25. Rev. Proc. 98-25 does not prevent or exempt a taxpayer from providing electronic records, if such records exist.
“Electronic information management has become the standard in business and will now be used to enhance the examination process,” said the IRS. “The ability to conduct audits using these software options will be available on an increasing basis as revenue agents begin to work with the new software. It is anticipated that this new audit tool will increase the speed and efficiency of field examinations, reduce taxpayer burden, and be a positive development for taxpayers, their representatives and the IRS.”
The IRS added that it is not endorsing, recommending or favoring any specific commercial products.