IRS Agents to Begin Accepting Taxpayer Records in Electronic Format

The IRS has announced that it will begin accepting taxpayer records in electronic format instead of continuing to use traditional paper books and records for tax audits [IRS Headliner Volume 303, 10/15/10].

For some time, business owners and tax professionals have been encouraging the IRS to accept taxpayer records in electronic format. These wishes were specifically expressed in tax practitioner focus groups held at the 2008 National Tax Forums, and from other stakeholders. After considering the issue, the IRS recently decided to train approximately 1,100 revenue agents on QuickBooks Premier Accountant Edition 2010 software. The agents who have completed the training are being encouraged to accept taxpayers' QuickBooks files, as well as electronic records from Peachtree accounting software. The ability to conduct audits using these software options will be available on an increasing basis as revenue agents begin to work with the new software.

The IRS is advising taxpayers providing electronic records to use a CD, DVD, or flash/jump drive to ensure the security of the files. Taxpayers should not use e-mail to transmit the electronic records.

The IRS believes that obtaining taxpayer accounting records in electronic format provides the following significant advantages: (1) It will reduce taxpayer burden because taxpayers won't have to print records stored electronically. (2) It will provide a complete set of the taxpayer's accounting records, which will decrease the number of items included in the initial document request and follow-up requests. (3) It will increase the efficiency of the revenue agent's analysis and testing of the books and records, which will speed up the entire audit process.

The legal authority for requesting QuickBooks backup files and accounting records in electronic format is in IRC §6001, Reg. §1.6001-1(a), Reg. §1.6001-1(e), and Rev Proc 98-25, 1998-1 CB 689. The aforementioned revenue procedure does not prevent or exempt a taxpayer from providing electronic records, if such records exist.