Tax & Accounting Blog

IRS Clarifies How Electronic Records Must Be Furnished for Examination

1099, Information Reporting for Wealth Management, ONESOURCE, Tax Information Reporting, TIN Compliance, Trust Tax, W-8 & W-9 Foreign Reporting, Withholding Management October 27, 2011

The IRS Small Business/Self Employed (SB/SE) division, which is heavily involved in Form 1099 tax reporting and withholding among other issues, recently released some details of how electronic accounting records (instead of books and records on paper) are to be furnished in response to an IRS Information Document Request (IDR). 

  • The IRS will want your backup files on a CD, DVD or flash (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 your 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 utilize 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.