• COVID-19
  • Insights
  • Who We Help
    •   Industrial Automation
    •   Manufacturing & Distribution
    •   A&E Professional Services
    •   International Businesses
      • ◦   Expanding Outside the U.S.
      • ◦   Expanding to the U.S.
  • Services
    •   COVID-19
      • ◦   Cash Flow Confidence Assessment
      • ◦   Maximize Your Loan Forgiveness
      • ◦   5 Key Focus Areas
      • ◦   COVID-19 Resource Center
    •   Client Accounting
      • ◦   Software Solutions
      • ◦   Accounting Support
      • ◦   Reporting
    •   Tax
      • ◦   R&D Tax Credit
      • ◦   Tax Credits & Incentives
      • ◦   Tax Structure
      • ◦   Federal Tax
      • ◦   State & Local Tax
      • ◦   Personal Tax
      • ◦   Other Tax Filings
    •   Advisory & Assurance
      • ◦   Assurance Levels
      • ◦   Reporting
      • ◦   Employee Benefit Plan Audits
      • ◦   Technical Accounting & Reporting
    •   Consulting
      • ◦   Data Analytics
      • ◦   Transaction Services
      • ◦   Business Planning
      • ◦   Succession & Exit Strategies
    •   International
      • ◦   International Tax
      • ◦   Foreign Direct Investment
      • ◦   Global Expansion
      • ◦   International Accounting
  • Events
  • Careers
    •   Why C&M
    •   Students
      • ◦   Campus Events
      • ◦   Internships
      • ◦   Reach Beyond Program
    •   Experienced Professionals
      • ◦   Team member profile videos
    •   Opportunities
    •   Employee Journals
    •   Office Tour
  • About Us
    •   How We Help
      • ◦   Service Approach
      • ◦   Affiliations
      • ◦   Communications & Technology
    •   Meet Our Team
    •   Testimonials
    •   Our Videos
    •   Our Story
  • Contact Us
  • Subscribe
CHANGE COUNTRY:
  • United States
  • 中国
  • Client Login
Clayton & McKervey Logo
  • COVID-19
  • Insights
  • Who We Help
  • Services
  • Events
  • Careers
  • About Us
  • Contact Us
  • Subscribe
    • Most Recent Insights
  1. Home
  2. Insights
  3. IRS Audits of Electronic Records

IRS Audits of Electronic Records

Posted by Margaret Amsden on November 29, 2012

Margaret Amsden Margaret Amsden

Co-authored by: Bryan Powrozek

Internal Revenue Service regulations require that businesses maintain sufficient records to support the income and deductions reported on their tax returns. These records traditionally consisted of countless binders and folders filled with paper copies of schedules and reports. However, as the use of computers has became more common, the number of paper records has decreased. It is now estimated that more than 90 percent of all business records are generated and maintained electronically. Of these records, less than a third are ever printed.

This change in recordkeeping has caused the IRS to shift the focus of its audits from a review of printed records to a review of electronic records, and as a result, businesses should familiarize themselves with the specifics of how the IRS will audit these electronic records.

Time Period

The IRS will typically request fourteen months of electronic data. The twelve months of the year under review as well as the month immediately preceding and following that year. If additional information is provided to the IRS, inspection of the data is limited to this fourteen month timeframe. If the scope of the audit needs to be increased, the IRS will notify the taxpayer of this change in scope.

Format of the Data to be Provided

The IRS is able to accept data from most major accounting software as well as Microsoft Access and Excel. If possible, the taxpayer should provide a back-up version of the data from their accounting software. In the event a backup is not provided, care should be taken not to alter or reconstruct the data being sent to the IRS.

Know Your Accounting Software

Before providing a back-up of the data to the IRS, it is important for taxpayers to understand the capabilities of their accounting software. For example, QuickBooksTM provides the option of creating a period copy which retains the details of transactions within the period but condenses the information prior to that period. This may be an acceptable alternative to providing a complete backup with all the company’s data.

Use of the Data

The data provided to the IRS will be used in two main ways. The first it to investigate the details of the area under review by generating predefined reports that are available in most tax software. The second is to confirm the reliability of the accounting records by testing the integrity and accuracy.

Method of Transfer

As with most businesses, the IRS can accept data in a number of ways. This includes CDs, thumb drives, memory cards, and external hard drives.

At first glance, a business may be apprehensive about providing the IRS access to its electronic records. However, providing this access has a couple of potential benefits to the taxpayer.

  • Reduced Burden – As mentioned previously, one of the ways the electronic records will be used is to generate the reports used in the auditing process. As a result, the number of information requests being made by IRS agents should be reduced since they will have the ability to create reports themselves. Businesses should no longer be responsible for preparing the paper versions of these reports.
  • Improved Efficiency and Faster Turnaround – The reduction in information requests and the ability of agents to generate their own reports should improve the efficiency of audits since there will be less downtime between when information is requested and when it is received. This in turn should result in faster resolutions to audits.

Our team is always ready to help.

Please contact us for more information.

Margaret Amsden

Margaret Amsden

Shareholder, Private Client Services

Contact Margaret   |   Read Margaret's bio

related news

Doing Business in Mexico: What to Expect this Year

Without a doubt, this year will be interesting for Mexico. To start, it’s an election year and we all know what that means…a lot of uncertainty. As the global pandemic…

Read full story

What Expenses Qualify for R&D Tax Credits?

The R&D tax credit is one of the most overlooked opportunities to boost your bottom line. Many business owners fail to claim it under the mistaken belief that they’re not…

Read full story

Clayton & McKervey Launches The Sound of Automation Podcast

Media Contact: Denise Asker, dasker@claytonmckervey.com; 248.936.9488 Southfield, Mich.—February 17, 2021—Clayton & McKervey, a certified public accounting and business advisory firm helping growth-driven companies compete in the global marketplace, is excited…

Read full story

Misconceptions About the Research & Experimentation Tax Credit

As companies put more emphasis on Industry 4.0 and business processes become more automated and accessible, the opportunities for Research & Experimentation tax credits increase. The Research and Experimentation (R&E)…

Read full story

Your Guide to R&D Tax Credits

If you haven’t looked into the R&D tax credit before, there’s a good chance that you’re missing a big opportunity to boost your cash position. Even if they’re aware of…

Read full story

Categories

Jump directly to the topics that matter to you most.

  • A&E Professional Services
  • About Us
  • Advisory & Assurance
  • Business Owners
  • C&M Press Releases
  • Careers
  • China Consulting
  • Clayton & McKervey
  • Client Accounting Services
  • Consulting
  • COVID-19
  • Data Analytics
  • Estate Planning
  • Expanding Outside the U.S.
  • Expanding to the U.S.
  • From the President
  • Industrial Automation
  • International
  • Manufacturing & Distribution
  • Mexico Consulting
  • Podcasts
  • Private Client Services
  • Tax & Tax Credits
  • Transaction Services
  • Videos

Authors

Read news direct from our managers and stakeholders.

    • Ben Smith
    • Beth Butchart
    • Bryan Powrozek
    • Carlos Calderon
    • Casey Haggerty
    • Clayton & McKervey
    • Dave Van Damme
    • Denise Asker
    • Eric Lin
    • Jim Biehl
    • Julie Killian
    • Kevin Johns
    • Margaret Amsden
    • Miroslav Georgiev
    • Nina Wang
    • Rob Dutkiewicz
    • Ruben Ramirez
    • Sarah Russell
    • Sue Tuson
    • Tarah Ablett
    • Teresa Gordon
    • Tim Finerty
    • Tim Hilligoss
    • Wendy Reedy

Additional Resources

Additional news from Clayton & McKervey can be found below.

  • Subscribe to our email newsletter
  • View upcoming events
  • Contact us to let us know how we can help you
  • Main Content
  • Related Insights

IRS Audits of Electronic Records

Posted by Margaret Amsden on November 29, 2012

Margaret Amsden

Co-authored by: Bryan Powrozek

Internal Revenue Service regulations require that businesses maintain sufficient records to support the income and deductions reported on their tax returns. These records traditionally consisted of countless binders and folders filled with paper copies of schedules and reports. However, as the use of computers has became more common, the number of paper records has decreased. It is now estimated that more than 90 percent of all business records are generated and maintained electronically. Of these records, less than a third are ever printed.

This change in recordkeeping has caused the IRS to shift the focus of its audits from a review of printed records to a review of electronic records, and as a result, businesses should familiarize themselves with the specifics of how the IRS will audit these electronic records.

Time Period

The IRS will typically request fourteen months of electronic data. The twelve months of the year under review as well as the month immediately preceding and following that year. If additional information is provided to the IRS, inspection of the data is limited to this fourteen month timeframe. If the scope of the audit needs to be increased, the IRS will notify the taxpayer of this change in scope.

Format of the Data to be Provided

The IRS is able to accept data from most major accounting software as well as Microsoft Access and Excel. If possible, the taxpayer should provide a back-up version of the data from their accounting software. In the event a backup is not provided, care should be taken not to alter or reconstruct the data being sent to the IRS.

Know Your Accounting Software

Before providing a back-up of the data to the IRS, it is important for taxpayers to understand the capabilities of their accounting software. For example, QuickBooksTM provides the option of creating a period copy which retains the details of transactions within the period but condenses the information prior to that period. This may be an acceptable alternative to providing a complete backup with all the company’s data.

Use of the Data

The data provided to the IRS will be used in two main ways. The first it to investigate the details of the area under review by generating predefined reports that are available in most tax software. The second is to confirm the reliability of the accounting records by testing the integrity and accuracy.

Method of Transfer

As with most businesses, the IRS can accept data in a number of ways. This includes CDs, thumb drives, memory cards, and external hard drives.

At first glance, a business may be apprehensive about providing the IRS access to its electronic records. However, providing this access has a couple of potential benefits to the taxpayer.

  • Reduced Burden – As mentioned previously, one of the ways the electronic records will be used is to generate the reports used in the auditing process. As a result, the number of information requests being made by IRS agents should be reduced since they will have the ability to create reports themselves. Businesses should no longer be responsible for preparing the paper versions of these reports.
  • Improved Efficiency and Faster Turnaround – The reduction in information requests and the ability of agents to generate their own reports should improve the efficiency of audits since there will be less downtime between when information is requested and when it is received. This in turn should result in faster resolutions to audits.

Our team is always ready to help.

Please contact us for more information.

Margaret Amsden

Shareholder, Private Client Services

Contact Margaret   |   Read Margaret's bio

related news

Doing Business in Mexico: What to Expect this Year

Without a doubt, this year will be interesting for Mexico. To start, it’s an election year and we all know what that means…a lot of uncertainty. As the global pandemic…

Read full story

What Expenses Qualify for R&D Tax Credits?

The R&D tax credit is one of the most overlooked opportunities to boost your bottom line. Many business owners fail to claim it under the mistaken belief that they’re not…

Read full story

Clayton & McKervey Launches The Sound of Automation Podcast

Media Contact: Denise Asker, dasker@claytonmckervey.com; 248.936.9488 Southfield, Mich.—February 17, 2021—Clayton & McKervey, a certified public accounting and business advisory firm helping growth-driven companies compete in the global marketplace, is excited…

Read full story

Misconceptions About the Research & Experimentation Tax Credit

As companies put more emphasis on Industry 4.0 and business processes become more automated and accessible, the opportunities for Research & Experimentation tax credits increase. The Research and Experimentation (R&E)…

Read full story

Your Guide to R&D Tax Credits

If you haven’t looked into the R&D tax credit before, there’s a good chance that you’re missing a big opportunity to boost your cash position. Even if they’re aware of…

Read full story

Categories

Jump directly to the topics that matter to you most.

  • A&E Professional Services
  • About Us
  • Advisory & Assurance
  • Business Owners
  • C&M Press Releases
  • Careers
  • China Consulting
  • Clayton & McKervey
  • Client Accounting Services
  • Consulting
  • COVID-19
  • Data Analytics
  • Estate Planning
  • Expanding Outside the U.S.
  • Expanding to the U.S.
  • From the President
  • Industrial Automation
  • International
  • Manufacturing & Distribution
  • Mexico Consulting
  • Podcasts
  • Private Client Services
  • Tax & Tax Credits
  • Transaction Services
  • Videos

Authors

Read news direct from our managers and stakeholders.

  • Ben Smith
  • Beth Butchart
  • Bryan Powrozek
  • Carlos Calderon
  • Casey Haggerty
  • Clayton & McKervey
  • Dave Van Damme
  • Denise Asker
  • Eric Lin
  • Jim Biehl
  • Julie Killian
  • Kevin Johns
  • Margaret Amsden
  • Miroslav Georgiev
  • Nina Wang
  • Rob Dutkiewicz
  • Ruben Ramirez
  • Sarah Russell
  • Sue Tuson
  • Tarah Ablett
  • Teresa Gordon
  • Tim Finerty
  • Tim Hilligoss
  • Wendy Reedy

Additional Resources

Additional news from Clayton & McKervey can be found below.

  • Subscribe to our email newsletter
  • View upcoming events
  • Contact us to let us know how we can help you

Website

  • COVID-19
  • Insights
  • Who We Help
  • Services
  • Events
  • Careers
  • About Us
  • Contact Us
  • Subscribe

Location

+1 248.208.8860
2000 Town Center
Suite 1800
Southfield, MI
48075 | USA

Connect

  • Events
  • Newsletter
  • Client Login

Social

  • LinkedIn
  • Facebook
  • Twitter
  • Glassdoor
  • YouTube
  • Instagram

Awards

DFP Top Work Places Best & Brightest
Prime Global

Tax | Accounting | Assurance | Consulting | Highly technical and accessible team of CPAs helping growth driven, closely held, middle market companies compete in the global marketplace. Michigan-based accountants and advisors focused on helping business owners in the United States and throughout Europe and China.

Privacy Policy Disclaimer

© 2021 Clayton & McKervey