Quickbooks backup audit request

[DaveO]

Just had my first request for a copy of a client's Quickbooks backup in an audit. Anyone else out there faced that before? I'm inclined to refuse. I've read the "authority" cited by the IRS and how this will "improve customer service and satisfaction" and make things better for the taxpayer but I see only a huge advantage for the auditor.

[MariaR08]

Just had my first request for a copy of a client's Quickbooks backup in an audit. Anyone else out there faced that before? I'm inclined to refuse. I've read the "authority" cited by the IRS and how this will "improve customer service and satisfaction" and make things better for the taxpayer but I see only a huge advantage for the auditor.

I'm curious to see what the outcome is... is it a large/complex file? You can print reports to excel and maybe say that's the "electronic accounting" client kept? I myself haven't heard anything about this so I'd like to follow this thread and see it through.

~Maria

[DaveO]

The file isn't all that big or complex. It's just that I don't want them on a fishing expedition. It's for a Sch C filer so there is a fair bit of personal information in there as well. At some point a person has a right to be secure in their papers and not have some governmental agency asserting a supposed "right" to see the every detail of their life. My interpetation of the Bill of Rights is that it was written for the benefit of the people.

I'll keep you posted on the feedback.

[jimmcg]

Just had my first request for a copy of a client's Quickbooks backup in an audit. Anyone else out there faced that before? I'm inclined to refuse. I've read the "authority" cited by the IRS and how this will "improve customer service and satisfaction" and make things better for the taxpayer but I see only a huge advantage for the auditor.

You have the right to substantiate the numbers on the tax return in any manner you deem appropriate. The auditor can accept or reject your substantiation. If rejected and the auditor writes it up then take it to the appelate level.

[veritas]

What kind of

personal info? I try to discourage personal transactions from a business account as much as possible.

On another note, it does seem the audits have gone up from the past.

To bad it all useless. Even if the IRS audited every tax return and every person/business in the US paid their full share, it would not come even close to offsetting the nation's spending problem.

I think I will mention that on the next audit I have.

[Jiggers]

Personal in a business account?

personal info? I try to discourage personal transactions from a business account as much as possible.

On another note, it does seem the audits have gone up from the past.

To bad it all useless. Even if the IRS audited every tax return and every person/business in the US paid their full share, it would not come even close to offsetting the nation's spending problem.

I think I will mention that on the next audit I have.

Happens all the time with most of my 1040 clients that have Schedule C's, E's, and F's. They would be transferring cash between accounts all the time to cover the losses on the F's.

As far as Quickbooks, I do not use the actual Quickbook information downloaded from the client's disk or flashdrive to my computer. I use a hard copy of the general ledger detail. If the client asks for the Quickbooks file, I can make a copy of that general ledger detail and provide that, because that is what I used to prepare the return.

The IRS is auditing a year, and all we have to provide is substantiation for whatever is questioned on the return.

[BHoffman]

Interesting article

http://www.calcpa.org/content/26182.aspx

[oceanlovin'ea]

discussion

I was at a meeting last weekend and this subject came up. If you give the auditor the QB files, they would have access to potentially several years information. They can then question things from other years or other areas.

Does not sound like a good thing to give them your QB.

Most of my clients do not use QB, but I use the program for after the fact bookkeeping for them. I am considering changing to another software to avoid this becoming a problem.

Linda

[Burke]

I just returned from a state NATP conference, and one of the speakers said they were doing this routinely now, especially with Quickbooks. They want a disk. Some practitioners were just putting the year under review on there so no other info was furnished unless an issue came up.

[joanmcq]

The auditor has a right to, and in the case of a business, will routinely request a copy of 'all books, records, files necessary to substantiate the accuracy of the numbers on the tax return' (written from memory, but you get the gist). The taxpayer is required, on the other hand, to MAINTAIN such books and records. In other words, if the records are crap, or nonexistant, no deductions are required to be allowed. This stuff is in the code, folks.

If the records are maintained entirely in an electronic format, then you have to give them that format. From what I've seen, giving them the entirety on paper is also acceptable...print the crap out. However, if the auditor wants to see if the books are contemporaneous, since the print date won't be, the electronic record would be required. If the books were 'cleaned up' for the audit, that becomes a reconstruction of records, and that is a different animal then from looking at the books & records from which the return was prepared. If you are looking at an audit by a Revenue Agent, they are doing a field audit, and want to examine the records where they are kept. If that is your client's office, and the records are electronic, you provide them or be faced with a supoena.

[Gretel]

If I couldn't get around to hand over a QB file from my client, I would create a new file and delete all transactions for years not under audit.

[geekgirldany]

I read the article where they will be asking for QBs, Peachtree, and other program files if available. I know in QBs that you can compress previous years transactions to make the file size smaller plus it also makes one big journal entry for those years and erases all other supporting data.

I was helping out an accountant in audit several years ago that involved a QBs file. His client did not want the IRS to see the previous years transactions in detail. So he asked me to compress the previous years but he did not anticipate the agent asking for the file as they always (at that time) asked for paper.

I guess that is where it is going. Paperless, efile, electronic everything. I myself would also compress the file so they could not see previous years info.

I wonder if they are training them how to use these programs?

[Gretel]

About two years ago QB offered the option to delete prior year transactions or any that is. I think it is available only the Accountant edition.

[DaveO]

The newer QB programs will hide the previous transactions but they don't compress the file much it just speeds up the indexing by not looking at the old transactions. Problem is the IDR asks for the administrator password so they could unlock any records you sought to keep private. I'm inclined to decline and sort it out in appeals.

This is also an opportunity to pickup some writeup work. Can't imagine the IRS wants to buy $2500 copies of Creative Solutions software for each audit team. Maybe the option to really close the books will be added back to the popular software packages.

[MariaR08]

a workaround is needed, just thinking out loud here...

how about combine the idea of "compressing" prior years info into one big journal entry...

- so, you have ur 2008 file, compress it and get your big journal entry
- create new 2009 file, use journal entries for beginning balances and continue with your 2009 year entries
- compress your 2009, get your big journal entry
- create new 2010 file, use journal entries for beginning balances... and so forth

So basically you're creating a new QB file for each year so it only contains that particular year's entries, but makes reference to your prior year using the "big journal entries"

I haven't played around too much with QB so not sure if any of this makes sense...