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IRS agents are starting to request accounting backup files from small business accounting software such as QuickBooks and Peachtree. The obvious concern is how much information the IRS is requesting and how it is using that information.

Since 2010, the IRS has been training revenue agents to be proficient in using QuickBooks, Peachtree and other similar accounting software packages. These agents are encouraged to request electronic files from small business taxpayers and their accountants.

There have been court challenges to these kinds of requests and exactly what kind of audit that would require an electronic backup file is still being sorted out. For instance, questioning a handful of business expenses probably would not warrant a request for your QuickBooks files, but larger-scope audits may trigger this kind of request.

There is a concern that corrections and adjustments within the accounting records, no matter how legitimate, may lead the IRS agent to question the integrity of the books in question. Sloppy bookkeeping that must later be corrected by an accountant could draw this sort of red flag.