In an attempt to reduce the volume of paper involved in audits, the IRS has been seeking electronic records as a more efficient auditing procedure.  This is also in line with what practitioners wanted: less paperwork involved in the audit process.  However, the concern remains as to how in depth an audit of electronic data will go before the efficiency of it is outweighed by the invasiveness of the records.  It is clear the IRS has legal authority to use electronic records in their audit.  Upon request, a taxpayer must provide electronic records and, if an attempt is made to withhold them, the IRS can disallow all the unsubstantiated items in the audit.

The process of requesting electronic data for the IRS’s auditing purposes is still in its beginning stages, and different steps can be taken to protect practitioners’ clients when adhering to these requests.  Some practitioners suggest that clients remove audit trails from their QuickBooks to avoid showing deleted and corrected entries which has proven to raise flags with the IRS.  However, leaving these audit trails on the books may avoid raising such suspicions.  Due to the infancy of this process, it may still be possible to request withholding certain backup files if it could endanger clients’ confidentiality.  Being upfront and communicating thoroughly in formally written letters to the IRS giving concise and specific reasons for your request will help ease any suspicions they may have, especially since the purpose of the audit of electronic data is to make the process more efficient not to make it more invasive.