Tax & Accounting Blog

IRS Document Requests Include Copies of Accounting Software Backup Files

1042-S, 1099, 6050W, Cost-Basis Reporting, Document and WorkFlow Management, Information Reporting for Wealth Management, International Reporting & Compliance, Tax Information Reporting, TIN Compliance, Trust Tax, W-8 & W-9 Foreign Reporting, Withholding Management September 19, 2011

Did you know that IRS requests for documents for examination are now routinely specifying backup copies of electronic accounting software records instead of paper books and records?

The IRS Small Business/Self Employed (SB/SE) division (which is heavily involved in Form 1099 tax reporting and withholding, among other issues) published a set of FAQs last week to provide information for payers that receive an Information Document Request (IDR) requesting electronic accounting records.

You may want to know:

  • The IRS will want your backup files on a CD, DVD, or flash or jump drive.
  • The IRS will also want the administrator’s username and password.
  •  Reconstructed, new or modified files will not meet the requirement of the IRS IDR.

The IRS wants a copy of the backup of the books and records of original entry.

  • Data converted to Excel spreadsheets will not meet the requirement of the IRS IDR.  The IRS wants the backup file because it is an exact copy of the original books of entry, and allows the IRS to review and test the integrity of the original electronic records using the software program.  It permits the IRS examiner to view transactions to see the date the transaction was originally created, the dates of subsequent changes, what changes were made, and the username of the person who entered or changed the transaction.
  • If the backup file given to the IRS contains data for years not under examination, the  IRS will not use that data during the examination of the specified year, except for transactions in the month immediately prior to the tax period being examined and the month immediately after the end of the tax period being examined (if the transactions in those timeframes are relevant to the examination).

You can see the complete set of FAQs on this topic at http://www.irs.gov/businesses/small/article/0,,id=238525,00.html.

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