The Use of Quick Books by IRS Auditors - John R. Dundon II, Enrolled Agent
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The Use of Quick Books by IRS Auditors

The Use of Quick Books by IRS Auditors

In January 2011 IRS agents began to audit Quickbooks data files and will require a copy of your QuickBooks data, if used, to help them with the audit. YIKES! These are some of my suggestions to prepare for a tax audit involving Quickbooks.

Make an annual backup that matches the tax return and store it away offsite to be ready for a future audit. The information used to complete a tax return is the responsibility of the taxpayer. You should be able to trace numbers from QuickBooks financial statements to the return. If you can’t, you need to ask yourself how those numbers were determined and create proper documentation and supporting entries. Once the data matches the tax return, QuickBooks has a built-in preference that allows a closing date to be set and even password protected.

QuickBooks comes with one user built in—Administrator – which is not password protected.  Create a password. Many taxpayers fail to create a password. When file sharing is necessary in an audit situation, the Administrator should assign the IRS employee with a separate user name and password.

Nothing in QuickBooks is recorded in stone. Any data can be changed, voided, or deleted, but the audit trail will record the activity by user. Setting up users is a very important part of data security.  It is a really bad idea on many levels to give an IRS employee administrator access with no password required.

QuickBooks data files have the capability of being condensed or cleaned up using the “clean up company data” feature for prior years. This will take transactions from a certain time period and condense them down to monthly journal entries, with the detail no longer visible. Many practitioners advise that for the year(s) prior to the start date of an audit, make a copy of your current data file, set up an IRS user and password, and condense the prior periods.