Is QuickBooks the best software option for a small non-profit organization?
There are many considerations to think about when selecting an accounting software program. One consideration that is rarely thought of is what could happen if the taxpayer’s tax return is selected for an IRS audit. The IRS is now both equipping and training its auditors on a couple of the most commonly used software packages. This may only be a start down a rocky road for the taxpayer. The IRS has purchased licenses for software products and can accept backup files for “most accounting software programs that are used by small business customers.” (IRS website Q&A).
The majority of the attention on this new audit procedure has been focused on QuickBooks and PeachTree as they are the most common “off-the-shelf” accounting products used by small businesses. And, we are seeing in several of the public tax forums discussions regarding IRS auditors requesting copies of backups for these products as a part of the audit.
You may ask a question like, “Why should I care if an IRS auditor wants a backup of my accounting software?” You should care! Tax practioners are concerned about the open access this gives an auditor to the organization’s information. And, then there is the interpretation of what is contained therein. Given a full backup of your accounting data, the IRS auditor would have open access to transactions from prior and subsequent years that are not within the scope of the audit.
With this new development, IRS has been very clear that financial accounting software files cannot be modified to delete activity for periods that are not currently under audit. Remember Enron? The big issues there really started with Destruction of Records. The destroyed records were outside of the retention requirements, but had not been destroyed in a timely manner. The destruction began when the organization was notified of an audit – a Big No-No.
So, given this development, you cannot delete activity from subsequent periods so as to limit the auditor’s view into solely the records covered by their audit request areas. The IRS position is that “…..the new or modified company file is not a copy of the books and records of original entry. The altered electronic file would not meet the requirements of the Information Document Request.” (IRS website Q&A)
The typical small business owner, or nonprofit organization who considers a purchase of accounting software typically is looking only at whether or not the package they are considering can provide them with the internal reports the organization needs to run the business at hand. But, as you can see, there are many more things to think about. In the event of an IRS audit, it is important that you only provide appropriate responses to the questions that are raised. But, given certain of the low-end accounting packages, you run the risk of opening yourself and your organization to the entire world of the IRS agent should you receive a request for a full copy of your accounting system.
There is lots to think about in your choice of an accounting system, but this is a new development that should definitely be factored in to your decision. We all love technology, but sometimes it is a double-edged sword.
For information on accounting software options, and their impact on your organization, please feel free to contact Huckstep & Associates, LLC at (800) 269-6466.
Huckstep & Associates is proud to have customers throughout the central United States including Arkansas, Colorado, Michigan, Minnesota, Missouri, Nebraska, Oklahoma, Kansas, Texas and Wisconsin and specializes in accounting services, nonprofit fund accounting software, reporting and human resource management systems (HRMS).