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IRS auditing S-Corp and asking for backup Quickbooks file - suggestions?

irs quickbooks filesThe IRS is auditing 2010 for an S Corp.  As part of their audit request, they have asked for an original Quickbooks backup file.  By giving them this file, they will have access to all transactions for the entire history of the organization.  Have anyone ever dealt with this before?  I am concerned they will look at activities outside the audit period, which will lead to increased work.

Answers

Kelvin Arcelay
Title: SVP Security and Risk Management
Company: Private Company
(SVP Security and Risk Management, Private Company) |

What is the context of their request? You could go ahead and give them the transactions during the audit period and wait to see if they need more.

One question that could come up is the chain of evidence. You would need to demonstrate that no data was manipulated outside of selecting the records for the extract.

Anonymous
(cfo) |

You could check with a lawyer but you're probably not required to. Just tell them there's privacy issues or something in your bylawys preventing that and send hard copies of reports instead. Many examiners don't have the technology to receive large files-does yours even transport? We had a legal request for an online quickbooks file so it wasn't even possible to comply with so we just told plaintiff.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

You could always make (after you talked with your professional legal/tax advisors) about having the IRS Agent come to your office and look at what ever they wanted within the Audit period.

You or your professional advisors could stand over them as they did.

debbie bosse
Title: consultant
Company: Cannon Wright Blount
(consultant, Cannon Wright Blount) |

Depending on the version of QuickBooks you use, there is a feature that allows you to remove data outside of the audit period, called a period copy (under utilities).

Anonymous
(Chief Financial Officer) |

Thanks - this is a perfect solution!!

Dan Jebens
Title: CFO
Company: ToolWatch Corp
(CFO, ToolWatch Corp) |

Actually having a digital copy of your accounting records has been a long time IRS reg. Debbie may have the perfect answer. You could also run a "Transaction Detail by Account" Report for the audit year (under Reports>Accountant & Taxes) and export to Excel. It should have what they are probably looking for anyway.

Jerry Murphy
Title: Owner
Company: Jeremiah K. Murphy, CPA
(Owner, Jeremiah K. Murphy, CPA) |

Outside the issues of why they are requesting the information, Debbie Bosse's response, above, is what I suggest also. Send them the period QuickBooks file available in QuickBooks 2011 and forward. You eliminate all detail before the period you are sending them and can specify the ending date of the period as well. The QuickBooks data that the IRS receives is, as they requested, original, unchanged transaction evidence but only for the period under audit.

Matt Wheeler
Title: Partner
Company: LMGW CPA LLP
LinkedIn Profile
(Partner, LMGW CPA LLP) |

We usually try to work with the auditor and see if an excel copy of the GL is sufficient to meet their request. We also recommend to our clients they make a backup copy of their QB file after year end each year so they always have a full copy they could provide to the IRS that does not contain post-period transactions. The IRS does have the authority to request the actual file.

Ted Monohon
Title: VP -Finance / Controller
Company: Fantex
(VP -Finance / Controller, Fantex) |

Having recently gone through this with thr IRS, if they have given you the required IRD, you have little choice to give them this data. As mentioned above, only give them the audit period in question. They will use this data for two things; to recreate you tax return (information return in a S corp) and select the transactions for further audit. Good luck!

Anonymous
(Chief Financial Officer) |

Thanks to all but especially Debbie. I was originally going to send an Excel general ledger file for the audit period but the IRS specifically asked for a Quickbooks backup file (qbb format). Debbie's solution will allow me to have Quickbooks eliminate detail and provide only monthly summary data for all the periods prior to the audit.

Lori Hammond
Title: CPA/Business Owner/Sr Mgr
Company: 8N Business Solutions and CBIZ, Inc.
(CPA/Business Owner/Sr Mgr, 8N Business Solutions and CBIZ, Inc.) |

We created a period copy using QB 2012 in response to an audit request this summer. When we gave it to the IRS they said they could not open it as they had not upgraded to QB 2012. They then accepted a G/L in Excel.

Wray Rives
Title: CPA CGMA
Company: Rives CPA PLLC
(CPA CGMA, Rives CPA PLLC) |

Since the 2012 version QB has the ability to create a copy that extracts only the transactions for a specific time period. They added that specifically for this purpose. All you have to provide are the QB file with transactions for the period under review.

Scott Bonacker
Title: CPA
Company: ...
(CPA, ...) |

This thread is old and long dormant, but for anyone who is searching for an answer now and finds it, a google search for these words: IRS AUDIT QUICKBOOKS FILE will yield several useful articles.

Another excellent article can be found here -
http://www.calcpa.org/news/2015/01/09/an%20open%20quickbooks in particular a line in the closing of the article:
In this respect, attempting to recast, “clean up,” or to lock out access to prior year data may be misinterpreted by a revenue agent as an effort to “hide” something when its only real purpose is to protect against prying eyes.

Anonymous User
Title: CFO
Company: Local Government Agency
(CFO, Local Government Agency) |

It's been a while for me in dealing with IRS audits for clients but, one of the SOPs we had back when I was in the tax prep business was to have the IRS define specifically what the scope of the audit was beforehand so that we could have all documentation ready. They weren't allowed to go on fishing expeditions and I've never seen them request all accounting transactions. In fact, the agents often appreciated the request because we would have everything they requested ready for review when they showed up and they could prosecute the audit quickly and efficiently.

Taxpayer's do have rights too.

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