How to Get Your QuickBooks Files Ready For a Tax Audit

Getting ready for tax audit

Have you heard?  IRS auditors are requesting a copy of businesses QuickBooks files and issued 1100 software licenses to agents.  The revenue agents are to attend a 3 day training course on how to use the program on how to use the data files and create reports.

The way the IRS conducts audits is not changing, just the tools are.  The auditor will recite a fancy IRS code giving their authority to do so.  The upside is that the IRS says it could lead to fewer requests of information.  However, being a QuickBooks Consultant, my concerns are that if your audit period is for 2010, your QuickBooks file contains information for years prior.  What is to stop the auditor from nonchalantly peeking at the books from other years?

Here are some other concerns and tips:

  • Avoid giving the data file by offering to provide information in Excel spreadsheets.  This way you have control over the data date range that is reviewed.
  • I really do not like the idea of the IRS having access to client and vendor names, addresses, phone numbers, EIN’s, payments, credit card information and confidential information.
  • Provide the information they are asking for in this format.  If you do not, the IRS can subpoena the data file.
  • What is the IRS doing to safe-guard the file integrity?
  • If you do give them a copy of the QuickBooks file and your audit period is for the 2010 year, condense the prior year data where it will archive transactions into journal entries.
  • Request that your tax preparer provide QuickBooks reports for the IRS agent rather than producing the full QuickBooks back-up file.
  • There is no way to delete transactions in one command after the audit date.  A suggestion would be to locate a back-up file soon after the ending audit date.  (This means you need to make consistent back-ups…are you?  Will this motivate you to do so?)

I hope these are some helpful tips, in case you find yourself in this situation.  A good tax professional will guard clients from additional audit exposure.  Contact a professional to protect your rights while complying with the auditors’ requests.

About Renee Daggett

Renee Daggett is the founder and President of Admin Books, Inc, a bookkeeping and tax firm. She is also the author of “Your Financial Flight Plan: Pilot Your Business To Profitability”. Renee lives her life with purpose and helps her clients find peace of mind as they achieve success in their businesses.

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