Is QuickBooks Helping the IRS Audit Your Books? | Tip of the Week | September 29, 2010 | No. 10
Preparation is key if you are audited
Editor’s Note: First part of this Tax Tip is for general knowledge. Experienced QuickBooks users may want to read this Tax Tip until the end.
In the past, an IRS agent would request printed reports and back-up paper documents during an audit. There is now the possibility that they will request an actual copy of your QuickBooks file – not just your printed general ledger. The IRS recently purchased several thousand QuickBooks licenses in preparation of up-coming audits.
According to the National Association of Tax Professionals, IRS auditors are now being instructed to obtain a copy of the taxpayer’s QuickBooks data file for audits for any taxpayer that uses QuickBooks. If the taxpayer refuses to provide the file and the auditor deems it necessary, they can issue a Summons for the file!
Government agencies are in desperate need of money, so they will be scrutinizing your records more than ever – keep it clean!
Give us a call if you have general or specific questions about increasing audit activities.
For Experienced QuickBooks Users:
Here are some things you need to keep in mind:
1. In the newer versions of QuickBooks, you CANNOT turn off the audit trail. Therefore, once you enter it in QuickBooks, it is NEVER gone. You can’t undo it. So use caution as you enter things and forget about delete.
2. When you need to void a transaction make sure you memo why you voided it. Did the customer refuse to pay the invoice, did you give away the product, did the bookkeeper double enter something? Put a memo because you won’t remember in a few years why you did it.
3. DO NOT MAKE CHANGES TO TRANSACTIONS IN A CLOSED FISCAL PERIOD. If your taxes for last year have been prepared – don’t make changes to that information. If you do, it won’t match what was filed with the state and federal government and will present an issue should an audit be performed. Prevent changes by setting the closing date password under Edit>Preferences>Accounting>Company Preferences>Set Date/Password. Check your closing date exception report (on accountant versions of QuickBooks only) or have your bookkeeper and/or accountant pull that report for you.
4. At your year end, consider making a copy of your QuickBooks data file and keeping it permanently as a “final backup” so that if a certain year is audited, you can condense prior years’ data and there will be no future years’ information in the data file for the auditor to see. The auditors are instructed to review only the information for the year under audit, but why not make it possible for them to ONLY see the year in question.
Questions or Comments?
Mark Vitek, CPA/PFS, CFP®
…until next week.