Mike DiSabatino CPA
2 minutes reading time
(356 words)
Quickbooks – IRS May Want Your Electronic Records
Tax Practitioners know that Section 6001 of the IRC requires taxpayers to keep their tax records and that Rev. Rul. 71–20, 1971–1 C.B. 392, establishes that all machine-sensible data media used for recording, consolidating, and summarizing accounting transactions is considered such a tax record for this purpose. Because many taxpayers are now keeping their records using Quickbooks, the IRS has purchased 1,100 Quickbooks licenses for distribution to revenue agents. The intent is that agents may more quickly audit a taxpayer by reviewing records maintained in Quickbooks.
Some taxpayers do not want to e-file their returns and may have similar reservations about sharing their Quickbooks records with the IRS. Added to the taxpayer's fear of sharing electronic data in general, may be a well founded fear that sharing a QuickBooks file may provide access to multiple tax years. What to do?
During a recent presentation by the IRS, it was recommended that a record for a particular tax year can be renamed (similar to the command, “Save As…”). The taxpayer can then delete any extraneous information from that renamed file before providing a copy—flash drive or CD (no emails) to the IRS agent.
I would also point out that Section 3.02(2) of Rev. Proc. 98-25, 1998-11 I.R.B. 7, provides an exemption from the electronic records retention requirement—and an exemption from the “give me your Quickbooks records mandate”—for any taxpayer with assets of less than $10 million UNLESS:
Some taxpayers do not want to e-file their returns and may have similar reservations about sharing their Quickbooks records with the IRS. Added to the taxpayer's fear of sharing electronic data in general, may be a well founded fear that sharing a QuickBooks file may provide access to multiple tax years. What to do?
During a recent presentation by the IRS, it was recommended that a record for a particular tax year can be renamed (similar to the command, “Save As…”). The taxpayer can then delete any extraneous information from that renamed file before providing a copy—flash drive or CD (no emails) to the IRS agent.
I would also point out that Section 3.02(2) of Rev. Proc. 98-25, 1998-11 I.R.B. 7, provides an exemption from the electronic records retention requirement—and an exemption from the “give me your Quickbooks records mandate”—for any taxpayer with assets of less than $10 million UNLESS:
- (a) all or part of the information required by § 6001 is not in the taxpayer’s hardcopy books and records, but is available in machine-sensible records;
- (b) machine-sensible records were used for computations that cannot be reasonably verified or recomputed without using a computer (e.g., Last-In, First-Out (LIFO) inventories); or
- (c) the taxpayer is notified by the District Director that machine-sensible records must be retained to meet the requirements of § 6001.”
