An IRS Audit and They Want Your QuickBooks File-Best Practices

9 thoughts on “An IRS Audit and They Want Your QuickBooks File-Best Practices

  • Susan
    It would be best to advise your boss not to alter the QuickBooks company file. Not only will that information still show on the copy of the invoice in QB, but you could also be asked for hard copy (paper) to back up anything that is in the file.


    I am being told by my boss to eliminate all customer information except the name, this is not possible. is it, as the info still shows on the invoice copy in the qb file

  • Charlie, thanks for pointing that out. At the time of the original article, using Karl’s tools seemed to be a viable option. After the information from the letter from the IRS to AICPA in April became available I forgot to come back and make that notation here.

    Actually, I need to get in touch with with the others and see if their procedures leave the audit trail intact.

  • Nancy, your article references uses Karl Irvin’s tools (very excellent products) – using his procedure you would be creating a new file, not just a file that has condensed prior year records, and the internal QuickBooks audit trail would not be intact. So, using that approach would not be the “records of original entry”. At least by my interpretation, and again I am NOT a tax lawyer or CPA.

    See the article in my blog at for the opinion’s of one CPA – and the point that you make about condensing only the prior year wasn’t addressed there (at this time).

  • Charlie, I agree, it’s a tough call to offer up an opinion – there seems to be some information that is open to personal interpretation. The following paragraph was taken from a letter that the IRS sent to the AICPA in April. See “IRS Responds to AICPA Accounting Software Examination Letter.”

    While condensed data is not acceptable for the tax year(s) under audit, client electronic data files may be condensed for dates prior to the year(s) under audit. This is acceptable as long as the condensed data does not include transactions created or changed for time periods under audit, or for transactions from prior years that have an effect on the years under audit. However, if the scope of an audit is expanded, the IRS may request another backup file that was created prior to the date the company file was condensed or request a copy of the archive file that was created during the condensing process. If the client does not have a complete understanding of the software’s condensing feature, please contact the software provider for additional guidance before using.

    From what I am interpreting from this letter from the IRS to AICPA, is that while prior years data may be condensed the Audit trail must be intact.

    Looking at the date on the IRS website and the date the letter was received by AICPA, it’s difficult to determine which is the more “current” information.

    Some of this is covered in Q13. Can a taxpayer or representative condense or “clean up” the electronic accounting software data file before submission?

    All in all very confusing times lie ahead.

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