IRS Will Target QuickBooks Users – 2

Filed in Intuit QuickBooks, Tax, Savings by on July 30, 2010

Here is an update to IRS Will Target QuickBooks Users.

Only sole proprietors can use the Fifth Amendment of the Constitution (the right against self-incrimination) to protect QuickBooks files from Internal Revenue. QuickBooks can easily give users the option to turn off the audit trail (showing the history of any transaction changes). This was an option until a few years ago. It also should be trivial to create an option to delete the audit trail.

Intuit already lets users (or consultants) start new files each year, to limit Internal Revenue involvement in prior or later years. This requires some custom work for open receivables, payables, or inventory. Intuit also can help users split QuickBooks files. A third party already does this. However, two years ago Internal Revenue announced changes to IRC 7216, dealing with concealing social security numbers to prevent identity theft. This especially applies to foreign outsourcing, where QuickBooks is a major factor. The changes were effective after 2008, but QuickBooks, TurboTax, ProSeries, and Lacerte tax still do not offer this. Competing offerings have this, so I doubt that Intuit will have audit trail or file split options for years. Meanwhile, IRS will feast on unsuspecting QuickBooks users.

A leading QuickBooks authority said he never saw a good QuickBooks file, in years of QuickBooks consulting. Few IRS agents are likely to become QuickBooks experts and none will do cleanups. The usual bad QuickBooks files will raise IRS suspicions. These suspicions will feed on a new and normally very useful QuickBooks function in the QuickBooks Accountant Edition. This is the Client Data Review, Trobleshoot Prior Account Balances. Accountants increasingly use it to summary adjust many preliminary client balances, to final accountant balance, in a single entry, without detail or explanation.

This will be one more reason that IRS agents will disallow wildly, and make taxpayers defend. Some accountants do a terrific job, but many taxpayers will not be able to defend properly, or pay to have someone to do this for them.

Compounding this problem will be that IRS Audit Chance Will Jump. Many new agents will target small business S corps (tripling the number of audits) for owner salaries and 1099s. The extra four billion 1099s will cost businesses a minimum of an extra $100 BILLION a year, which will cut IRS tax receipts by around $25 billion. I calculated the extra agent costs at $4 billion annually, though IRS expects to collect less than $2 billion, for a net tax income DECREASE of $27 billion.

If taxpayers do not properly file these 1099s, each unfiled 1099 can result in a $50 penalty and the loss of the related deduction. They also will incur very large extra costs for representation in many IRS exams. That is why I predict The Great Depression of 2012, unless we repeal the Healthcare 1099s.

Here are some good news items:

Many businesses will switch to fiscal years, which will mke the value of calendar year 1099s almost worthless, so IRS should not collect the expected revenue.

I never saw IRS assess this penalty against owners, if corporations went out of business owing them.

Those with Microsoft Accounting can now get a $200 Peachtree accounting program free. Microsoft Action Pack subscribers can give their 10 free copies of Microsoft Accounting to friends, so they can do this. Yes, IRS may get Peachtree as well, but they will be less familiar with it. We also should soon do much more to end the 95% QuickBooks monopoly.

Replacing the income tax with the Fair Tax (national sales tax) to replace income taxes, so we finally see what government really costs (even if we do not add the totals).

The American Institute of CPAs, the Internal Revenue Taxpayer Advocate, most business groups, and anyone who does the simple math, are calling for repeal.

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