Quickbooks and accounting software similar to Quickbooks, such as Xero, are now commonly used by small business owners to track their accounting records. For a fairly small price, it enables businesses to have financial reports, to assist them in running their business, and provides a database where they can store their financial records for many years.
The IRS is very interested in the value of the information contained in the file, wants to get access to it, and yes, they will get access to it, as part of an audit. The IRS has the authority to access to these electronic files under the IRC, and the courts have backed up this right, in several cases.
The reason that they want this information is not so they can’t only see the final reports provided by the Taxpayer, but it allows them to see all of the detailed transactions in Quickbooks, including adjustments, the dates adjustments are made, etc… It gives them a full audit trail of the history and the adjustments, including whether there were a bunch of changes and adjustments made just before providing the information to the auditor.
What does this mean to you? First, you should know what your turning over. If you’ve made adjustments, you should be ready to communicate a proper business reason for making those adjustments. Also, you shouldn’t turn over the entire file to the IRS. You should only turn over the years under audit. Otherwise, the IRS can go on a fishing expedition for years in which are not required to be turned over. To do this in Quickbooks, you would make a Period Copy from Quickbooks Desktop. If you are on QBO, you would first move the data to Quickbooks Desktop and then create the period copy. The key to turning over data is that you don’t want surprises.
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