09 / 27 / 11

Privacy, Small Business, and the IRS... what data is the IRS really entitled to have access to?

Small businesses are concerned about the changes in how the Internal Revenue Service (IRS) does an audit. The IRS is requesting access to the business software files that small businesses use.

This could include non-related information like client lists, personal information, confidential client data, and more. The concern began when an official from the American Institute of CPA's wrote a letter regarding the changes in IRS audits.

Most small businesses don't have the means to buy the type of business software programs that can isolate the specific information that the IRS requires and are fighting the introduction of the IRS having access to all the data on a business software program.

The IRS has refused to comment on the reported purchases of small business accounting software to use in tax audits.

A small business is categorized as any business that has less than 10 million dollars in assets. Many of these businesses often use over the counter business software like the following:

  • Intuit Inc's QuickBooks
  • Sage Group's Peachtree

Danny Snow, a certified public accountant (CPA), worries that the IRS changes will lead to unnecessary "fishing expeditions". There have already been requests for software files, by IRS auditors, but the IRS has chosen not to give any numbers regarding how many requests that they have made for this.

Audits have increased for small businesses. Some of this is due in part by non-compliant sole proprietors, which are responsible for about 20% of the 345 billion dollar gap in what taxes are paid and what taxes are owed.

Unlike big businesses, small business don't have the staff available to provide the specific information that the IRS requests in its audits. Though the IRS agreed that for years not related to the audit, the data could be condensed (details reduced), they have not addresses the issue of non-related client information that is also on the software.

Turning over data or waiting for a summons requesting the data may be the only choices that a small business may have in the future.

** Bryson Law Firm, LLC is a Louisiana based law firm focusing 100% of practice on helping people and businesses solve their IRS and state tax problems.