At a meeting it hosted in September, the American Institute of Certified Public Accountants encouraged senior Internal Revenue Service officials and accounting software developers to find ways to minimize the amount of data small businesses must turn over to the IRS when the business’ accounting software file is requested as part of an IRS examination.
The meeting was the latest action by the AICPA to protect the electronic records of small businesses that could contain private information about clients that is unrelated to the tax return under examination.
Patricia Thompson, the chair of the AICPA Tax Executive Committee, said in a March 29 letter to Chris Wagner, commissioner of the IRS Small Business/Self-Employed Division, “Once the software file of a small business taxpayer is requested by the IRS for examination purposes, the AICPA believes the taxpayer should have the right to ‘redact’ the software file and turn over only the data that is responsive and relevant to the examination.”
The IRS said in an April 20 letter to the AICPA that it wants to see the original data file because it would help identify whether there have been deleted or altered entries to the file.
As a result of the dialogue between the AICPA and the IRS about the need for clearer guidance about the program, the IRS recently released frequently-asked questions about the examination program. In addition, the IRS released guidance to its field examiners.
At the September meeting, the AICPA emphasized the need for the software developers to consider making modifications to their accounting software products to make it easier for small businesses to provide only data that is pertinent to an IRS examination.
The AICPA will continue to work with the IRS and software developers in order to mitigate the amount of data small business taxpayers must turn over to IRS during an IRS examination.
Read more about the IRS examination program and the AICPA’s efforts in the July Journal of Accountancy article.