Businesses frequently use “off the rack” accounting software to maintain proper “books and records” – these include records involving income, expenses, assets and other pertinent information.
The AICPA met with senior IRS officials and accounting software developers to encourage them to find ways to minimize the amount of extraneous data that small businesses must turn over when the business’ accounting software file is requested as part of an IRS examination. The AICPA has 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.
As a result of the dialogue between the AICPA and the IRS about the need for clearer guidance about the program, the IRS revised its Frequently Asked Questions about the examination program and provided clearer guidance to its field examiners. Software vendors are considering modifications to their software to mitigate problems for taxpayers. We will continue to work with the IRS and software developers to address this issue.
At the AICPA National Tax Conference, IRS officials fielded questions from practitioners about requests for electronic records contained on accounting software files. The IRS Practice and Procedures Committee hosted this discussion.
- IRS Examinations of Small Businesses and Their Electronic Files (Tax Adviser article)
- Accounting Software Guidance Issued (Tax Adviser article)
The AICPA has worked to protect the electronic records of small businesses that could contain private information about clients that is unrelated to the tax return under examination. Below are links to comment letters and an article describing our advocacy on this issue.
Below are links to resources that can help you, including FAQs developed by the IRS and a court decision that outlines IRS' authority in this area.
- IRS Audits of Small Business Files: Practitioners Should Balance Risk for Clients (Journal of Accountancy)
- Frequently Asked Questions
- IRS Field Guidance on Accounting Software