Posts Tagged ‘small business’

IRS Requesting Small Business Databases (i.e. QuickBooks & Peachtree)

Do you own a small business using QuickBooks or Peachtree as your accounting software?  Most likely you have stored critical unrelated financial information within the framework of the software.  By unrelated financial information we are referring to customer/client lists, personnel data, confidential client information, and other information used for business purposes.

Jump forward a few months from now and imagine receiving a letter from the IRS giving your business an examination notice (meaning you’re under audit).  How concerned would you be, or your clients for that matter, if the IRS requested your software database containing all this unrelated financial data?  Unfortunately this request is occurring more frequently and is being explained as the IRS’ attempt to modernize.  The IRS has purchased copies of various small-business accounting software to accomplish this task.  Requesting the electronic files is now standard operating procedure.

In recent years the IRS has ramped up efforts to more aggressively collect taxes from small businesses.  Statistics show that small businesses are one of the largest contributors to the “tax gap” (taxes owed but not paid or reported).  What better way to close the gap than to increase audits on small businesses where non-compliance is an issue?  Let’s face it…large corporations have their own accounting armada to keep everything straight with laws, regulations, and the taxes they pay.  Small businesses don’t have that luxury.

The main concern we have in providing IRS access to an accounting database is whether the auditor will stay within the scope of the requested information.  Do you want to IRS potentially contacting one of your clients?  Seeing what they purchase from you? Seeing what you purchase from vendors?  The fact that you are being audited is not something to brag about, but client relationships could be affected if some of their private information is handed over.  How would you feel if your personal information was handed over to IRS?  What would you do if you found out?  Another concern would be your reputation if  word got out that your business was under audit.  Questions could arise regarding the circumstances of the audit (randomly selected as opposed to improper filing). 

If a company turns over complete electronic records, there is no way of knowing what the IRS will do with that information.  The IRS has not addressed this issue except to say “privacy of return information” is of utmost importance to the agency.  Virtually all professional organizations in our industry are vehemently opposing this policy.

In subsequent posts we will discuss ways to approach this dilemma if you are audited and IRS requests your data base.

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