Saturday, October 09, 2010

IRS Planning on Requesting QuickBooks Files in Audits

Well other accountants are beginning to take note of what I've been telling clients for the last 5 or 6 months.

The IRS is in the process of training agents and acquiring QuickBooks software with the intent of requesting your QuickBooks company files as part of any audit they perform. So be aware, this is a good time to get someone to look over those files if you or someone else within your business is doing your books without the aid of a qualified accountant.

Many people just don't realize the risks of having the IRS go over those files. Even if all of your income and expenses are reported and the amounts are totally correct you can still be in trouble just because things aren't reported in the right categories or following the necessary accounting procedures.

The worst areas of compliance I see are in most often are in asset listing (and any accompanying depreciation records) and the proper accounting of the Owner Equity account.

Owner Equity is difficult to understand and tracking adjustments to it for any type of shared owner based tax entity (Partnership, LLC, Sub Chapter S Corp.) are especially difficult. So I see these accounts with incorrect entries quite often. And issues of not having this information correctly accounted for can affect your ability to claim loses especially against other income.

So as Shannon Tucker says in his article contained below this is going to change the whole nature of audits and not for the benefit of Small Business. Believe me the IRS isn’t buying from 1,500 to 2,000 copies of QuickBooks and training their agents in its use just for fun. They now have, or will have by next year, the tools and the training to do audits directly on QuickBooks files and not even have to leave their office to do so.

That leaves the ball in the court of the small business owner. I can only hope that they take heed and address any problems they may have in their accounting.

And feel free to write, call, or contact me if you have any questions or would like me to look things over for you. Best of all we will do a basic review of your books free of charge for those requesting it between now and the end of January 2011 just to help with this problem. And if it reveals any problems we’ll can help you decide what course of action is best for you resolve your problems.

ProServices of Kansas

a Full Service Accountancy & Business Consultant Practice

1-316-250-4474 (cell)

1-801-981-6929 (fax)

http://timepasseson.blogspot. com/

@kstaxman (Twitter & Amplify)

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Getting Audited? They Might Want Your QuickBooks File

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…

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.


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