Discussion:IRS Auditors to be trained in Quickbooks

What would happen if they got the data file, tried to open it, found they had to upgrade in order to get the file to open. Would that provide any defense for a client who may feel the need to be defended? Something like "Well, in my version of QB, that's not the way it was, your honor. I have no idea what happened in the conversion process to a different version."

Read carefully Revenue Procedure 98-25, and Rev. Proc. 97-22 (available on legalbitstream). And don't get too excited about the 10 million dollar in assets threshold trigger for the requirements.

If I'm reading this right, the client technically has to give access to his computer terminal, and teach the IRS how to use the computer. Technically. No horsing around here.

AND there is a huge hole the in the 10 mil. trigger, the rules also apply: to ANY business if information to support an amount of income, deduction, credit or other item on a return is not available in hard copy but is available in a computerized format.

This handy tip I got from the Quickfinder Accounting & Bookkeeping 2006 Edition.

Makes those paper ledger books look a little better, don't it!

I've said over and over again, books and papers are technologies, and they are great technologies that have stood the test of TIME.

We are being rooked by this paperless thing folks. I'll shut up as I'm beginning to sound like a Luddite.

I will say this, it will NOT turn out to be cheaper to keep records on computers (electronic records). I won't even consider what happens if there is no AC power, or battery power for some reason.

The reason electronic records will not be cheaper is that as time goes along, more and more time ($$) must be spent to make sure records are transferred over properly to new, and different hardware. Clients forget things, manuals get lost, software and hardware vendors go out of business. You wait, chaos.

But I can go right today, and pick up a book that was bound during Martin Luther's time, and the only hardware I need is my two hands and a strong back....... Now that IS a great technology: the book is the greatest technology ever invented because it is SIMPLE.

I can see running condense and having a printout (pdf) with the detail and telling the auditor I run condense annually. BUT in reality, I would use condense and tell the auditor that that's all I have. I might also tell him (GFY) and see what legal supprt they have to subpoena the software. I am confident they would win in this case however.

I have done 2 audits on QB's and have provided the auditor with printouts and in ONE case I brought my laptop to the audit and we literally walked through the audit via screen. (ONLY because client was clean). The rub came in because Wachovia did not provide cancelled checks or copies...the auditor was so pissed. He couldn't verify the payee only the amount.

In 2007 I had 2 requests for files. One was from the State of NH; and it took some time before we could agree on an acceptable media for the files, since the Dept of Revenue had to scan for viruses. Also, we could not figure out how to copy 1 year's records and not the whole ten years that were "in" Qbooks. Fortunately, in this case; the client's "books" were merely the check register (which was full of errors) with no adjusting entries or any balance sheet accounts. The State was unable to prove whether certain transactions were intended as loans or dividends.

The IRS also requested Qbooks files, which they never received. The client lost about $500,000 that year and the auditor was wasting time.

They were not and should not be given access to the live system which ended the matter. Actually more and more of my clients are moving to it so I'm not overly concerned.

My theory was the "hit by a bus" one - if I get hit by a bus, I don't want to have a single document in my office that a client might ever need that they don't also have. I'm not sure many of my clients are even backing up their computers and there are many reasons they might not be able to come up with the detail backing up the entries on their tax returns, due to all the reasons CrowJD talks about.

There was a case in my area of a tax preparer's not so sudden death, after which some of his clients ended up routing through his files looking for "their" documents. It was really ugly and could have been prevented had he embraced the "hit by a bus" philosophy.

It's a lot of paper, but I'm now on a first name basis with my very own Staples sales representative.

I don't have the actual Rev. Procds in front of me as I got a summary out of the Quickfinder Bookkeeping & Accounting book I mentioned above.

Perhaps Trillium can put a link, or either you guys have better online tax research than I do.

I remember this CPA came on here one time and he had an external harddrive and he was using it for storage. Well, the manu. stopped making that harddrive and stopped supporting it, and lo and behold he had to pay 4K to get that thing cracked. I can't remember the exact details, but it made an impression on me. Natalie may remember the man if she comes by.

You can buy a lot of paper and file cabinets for $4,000.00, of course, the space to put them in costs money.

P.S. by the way, I've been corning the market on used file cabinets for the last 5 years. I think there's going to be a run on them at some point, and the new ones are very expensive and a lot of plants are closing down. I don't know if my investment will pan out or not. If it doesn't pan out, I'll sell them to the government to make reefs for fishing.

Everyone is getting rid of (the old, sturdy wellbuilt) file cabinets, so naturally, I'm buying them.

File >> Utilities >> Clean Up Company Data

Type in the date you want to condense everything prior and click next.

An Examination QuickBooks Directive?

NAEA learned last Friday that a revenue agent (RA) referred to a national directive instructing RAs to request the electronic QuickBooks data file in every instance in which an audited taxpayer uses QuickBooks. This came as news to NAEA's Senior Director, Government Relations, Bob Kerr, who has reached out to SB/SE for further clarification.

We know IRS recently put together a QuickBooks training manual for its RAs because NAEA in January commented informally on the manual (our Government Relations Committee reviewed the manual). The manual did not suggest producing QuickBooks data would be compulsory. At the time, we expressed concerns that any electronically provided data would be used as a part of a proverbial fishing expedition.

In conversations late last week, Kerr learned that IRS has secured a substantial number of site licenses from Intuit (E@lert wonders how its QuickBooks clients are going to like hearing that!). We have expressed our disappointment that enrolled agents were not apprised of the implementation in advance and have asked for clarification on whether any directive exists (and if so, what it contains). We have also expressed concern that the program may be troubling for taxpayer representatives determined to protect taxpayer rights.

We understand that a communiqu� should come from the agency after the holiday weekend.

Givint the IRS access to the Quickbooks file makes it so much easier and more efficient for them to "query data". Forget for a moment the merchant accounts and 1099's. The simple ability to "ZOOM IN" on an expense area or search through journal entries consecutively gives the auditor much more ammunition than before.

I am personally not that surprised or concerned but the thought of the IRS in effect" sitting at your computer" and then asking questions changes the nature of the audit.

I haven't had any audits since the early 1990's but keep reading about how the IRS is planning on closing the $300 billion tax gap via increasing audits. Plus the commissioner has assured the public that this won't result in jack booted thugs descending on them, rather the IRS will do it by pressuring preparers to be less aggressive. Isn't that swell?

At any rate, I fully expect that if there is a significant uptick in audits that I will lose the clients who have to pay adjustments. But, theoretically I would expect to gain just as many who have left other accountants for the same reason - sort of like musical chairs.

I am also using this as a further notification that they really need to clean up their books as there are some serious consequences for not having great/perfect documentation.

I'd much prefer to teach clients about the accounting cycle than to teach them how to screw up their business using "easy" software.

Plus, with Peachtree, as they grow their business, it will be easier to migrate them to MAS90/200 ;-)

In some ways, the IRS is getting to regulatory, but in others, if it "encourages" clients to use better software, or to use their existing software properly, then great.

Paper reports it is.

LJACPA - In my case, the auditor also asked for any adjusting entries that were used to prepare the books and the tax return.

I guess like a lot of things, the audit trail can be seen as good or bad. I usually look at it as a positive change that QBs made because it makes it harder for people to commit fraud and get away with it. I read of one executive director of a nonprofit organization that turned off the audit trail, changed a bunch of transactions to conceal what she was doing, and stole thousands of dollars. If your client is above-board, this shouldn't be an issue, and I don't think the IRS asked for this.

Several people have mentioned condensing the files. This can be a good option, but remember that any "open" transactions will be retained in the new file. That means any outstanding checks, receivables that haven't been paid, bills that haven't been paid or transactions that haven't been printed. In some cases, open transactions are significant.

As for the audit trail, It's a great idea that it's never turned off. You still need to dig and search to make sure things aren't changed, but it's better than before.

Tax WriterTax Writer 14:17, 3 November 2010 (CDT)