AICPA Calls for Safeguards for Electronic Data Provided for IRS Exams

The AICPA called on the IRS to start a dialogue to fix what it views as an important problem for some small businesses under audit examination: providing electronic records to the IRS while protecting confidential information that is not relevant to the IRS’ request.  


The IRS maintains that the electronic data review will lead to quicker audit resolution due to fewer requests for follow-up information and will also reduce taxpayer burden. Agents may not request the electronic data file in every case where the taxpayer uses electronic records, but tax professionals are concerned that, when one is required, the cost of an audit representation could increase substantially if considerable resources are needed to ensure only the relevant information is provided.


In a letter to the commissioner of the IRS’s Small Business/Self-Employed Division, Patricia Thompson, chair of the AICPA’s Tax Executive Committee, noted that the separation of data on records prepared with software such as QuickBooks or Peachtree is a real issue for smaller businesses. “[B]ecause the small business taxpayer often maintains his own accounting software file and is not a trained bookkeeper or accountant, the data in the software file is not necessarily directly relevant to the IRS examination,” she stated. In some cases, that data may include nontax information such as a customer list or confidential taxpayer records related to years not subject to the audit.


While the software companies are working to make it easier to segregate data, precautions are needed in the meantime, she observed. Thompson proposed launching a dialogue between the AICPA and the IRS to examine ways that small businesses can provide the IRS with the records it needs while maintaining appropriate safeguards.


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