Beyond the Bottom Line February 2012
IRS Audits of Small Business Electronic Files
The IRS is training over 1,000 revenue agents to become proficient in small business accounting software such as QuickBooks and Peachtree and encouraged agents to request electronic files from these software programs from taxpayers and tax preparers during audits.
The IRS has the broad authority to examine electronic records to establish the taxpayer’s liability and require the taxpayer to make these records “available for inspection by authorized internal revenue officers or employees, and shall be retained so long as the contents thereof may become material in the administration of any internal revenue law.” The IRS stresses the importance of having an exact copy of the original electronic data file statng, "Only an exact copy of the original file includes the unaltered metadata which allows examiners to properly consider the integrity and veracity of the electronic files.”
IRS Form 4564, Information Document Request, requires that software files must be provided to the IRS by DVD, CD or flash drive. Files cannot be sent by email. The IRS recommends that files be encrypted and the passwords be sent separately (username and passwords are required).
Areas of Potential IRS Audit Focus
- Original books of entry and dated transactions, subsequent changes, and the user name of the person who entered or changed a transaction.
- If the IRS is tracing business income, they may examine taxpayer websites, e-commerce activities and marketing material to track e-payments.
- If the IRS is examining accrual accounting, reconstruction of income or similar issues, it might require a review of relevant data from other tax periods, and might request a backup file created before the file was condensed or a copy of the archive file created during the condensing process.
Possible Protection From and During an IRS Audit
- Document erroneous bookkeeping entries, the correction and an explanation of the correction.
- When providing data for the year under audit, consider condensing transactions of non-audit years.
- Explain in writing to the IRS exactly what you will be condensing.
- Clearly explain what data you are and are not providing to the IRS.
- Create separate backup files for each year. (BMSS sister company Abacus IT Solutions can provide guidance on backing up your files.)
- Consider consolidating into one complete system.
IRS and ADOR Tax Relief for Victims of January Tornadoes in Alabama
Victims of the severe storms and tornadoes that took place in January 2012 in Alabama may qualify for tax relief from the IRS and the Alabama Department of Reevnue (ADOR). President Obama has declared Chilton, Jefferson, and Perry counties a federal disaster area. Individuals who reside or have a business in these counties may qualify for tax relief. If you are an affected taxpayer, we can provide you with necessary information about the IRS and ADOR relief.
Worker Classification Enforcement Efforts
BMSS previously informed you about the IRS Voluntary Classification Settlement Program (VCSP) in which taxpayers may voluntarily reclassify workers as employees for federal employment tax purposes.
Further efforts are being made to enforce worker classification by numerous legislative agencies. In September 2011, a Memorandum of Understanding (MOU) was signed between the IRS and the Department of Labor (DOL) documenting plans to begin sharing information related to employee classification in a manner that protects taxpayer identities. The DOL will share employment tax compliance investigation data with the IRS. The IRS will evaluate these DOL employment tax referrals, conduct examinations if appropriate, and may share the referrals with state and municipal taxing agencies. The IRS will share data relating to trends in misclassification with the DOL.
Also in September 2011, President Obama unveiled his plan, “Living Within Our Means and Investing in the Future: The President’s Plan for Economic Growth and Deficit Reduction,” in which he granted the IRS expanded authority to regulate worker classification and issue generally applicable guidance about the proper classification. This plan is expected to reduce the nation’s deficit by $8 billion over 10 years.
The IRS is hosting a free webinar on Worker Classification on February 15. For more info and to register...
BMSS Charitable Giving
Character is one of our firm’s core values and we believe character is nurtured through community service. In recent months, we have participated in Habitat for Humanity, Arthritis Foundation Jingle Bell Run, and have collected items for survivors of the recent tornadoes. If you have a suggestion for the BMSS Charitable Giving Committee, or would like to participate with BMSS on a project, please let us know. View photos from past service projects on our Facebook page.
20 Years of BMSS – In Their Own Words
Founding shareholder John Shank answers, “What accomplishments at BMSS make you most proud?”
"It’s tough to sit down and reflect back on past accomplishments that I would be proud of over the years as we have been blessed with so many things at BMSS. Also, our organization is always changing and things move so rapidly that we don’t often have time to reflect.
However, as I do reflect, I think one of the best things that we have done is create a work environment that attracts top clients and top employees, that is progressive, always changing, that always tries to do the right thing in all that we do, and that promotes a life/work balance while doing all of the other things mentioned. This is how we have grown from just me, Keith Barfield, and Don Murphy 20 years ago, to a firm encompassing multiple business lines, several sister companies, and over 100 employees.
I think of the shareholder harmony that we have. We have 9 shareholders and have always worked well as a team. Certainly we have differences of opinion, but we always reach a resolution we can all agree on and implement to manage in a productive environment.
I think of all the people who have “grown up” here. We have witnessed marriages, births (we have always had an employee or spouse pregnant since the inception of the firm), deaths of loved ones or firm members, and now after 20 years, our people having their children getting married and having grandkids! I am proud of our family environment that rallies around one another in these different phases of life and I am proud of the people who came here as “rookies” and are now senior members of management.
Lastly, I am proud (although I think blessed is a better word) to have been involved in this firm. In 20 very fast years, we created one of the premier accounting firms in the state. I believe this firm will continue into the future long after the founders are gone. I am thankful for the friendship and support that Keith, Don, and I have shared with one another right from the start. That camaraderie has been essential to where we are today and I am grateful I was there at the start with them.
If this is what we have done in the first 20 - imagine what we can do in the next!"
John Shank, CPA, CVA
IRS Circular 230 Notice: Federal regulations apply to written communications (including emails) regarding federal tax matters between our firm and our clients. Pursuant to these federal regulations, we inform you that any U.S. federal tax advice in this communication (including any attachments) is not intended or written to be used, and cannot be used, by the addressee or any other person or entity for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
Keith Barfield has five children - Heather, Mitchell, Sacca, William, and Jillian. He is a founding member at Barfield, Murphy, Shank & Smith and has lead resp... read more
“Barfield, Murphy, Shank & Smith knows our business and is one of the few firms that understands the way construction accounting is done. We’re proud to be charter clients.”