Injured or Innocent Spouse Tax Relief 

You may be an injured spouse if you file a joint tax return and all or part of your portion of a refund was, or is expected to be, applied to your spouse’s legally enforceable past due financial obligations.

Here are seven facts about claiming injured spouse relief:

1. To be considered an injured spouse; you must have paid federal income tax or claimed a refundable tax credit, such as the Earned Income Credit or Additional Child Tax Credit on the joint return, and not be legally obligated to pay the past-due debt.

2. Special rules apply in community property states. For more information about the factors used to determine whether you are subject to community property laws, see IRS Publication 555, Community Property.

3. If you filed a joint return and you're not responsible for the debt, but you are entitled to a portion of the refund, you may request your portion of the refund by filing Form 8379, Injured Spouse Allocation.

4. You may file form 8379 along with your original tax return or your may file it by itself after you receive an IRS notice about the offset.

5. You can file Form 8379 electronically. If you file a paper tax return you can include Form 8379 with your return, write "INJURED SPOUSE" at the top left of the Form 1040, 1040A or 1040EZ. IRS will process your allocation request before an offset occurs.

6. If you are filing Form 8379 by itself, it must show both spouses' Social Security numbers in the same order as they appeared on your income tax return. You, the "injured" spouse, must sign the form.

7. Do not use Form 8379 if you are claiming innocent spouse relief. Instead, file Form 8857, Request for Innocent Spouse Relief. This relief from a joint liability applies only in certain limited circumstances. However, in 2011 the IRS eliminated the two-year time limit that applies to certain relief requests. IRS Publication 971, Innocent Spouse Relief, explains who may qualify, and how to request this relief.

Deducting Charitable Contributions: Eight Essentials
IRS Tax Tip 2012-57

Donations made to qualified organizations may help reduce the amount of tax you pay. 

The IRS has eight essential tips to help ensure your contributions pay off on your tax return.

1. If your goal is a legitimate tax deduction, then you must be giving to a qualified organization. Also, you cannot deduct contributions made to specific individuals, political organizations or candidates. See IRS Publication 526, Charitable Contributions, for rules on what constitutes a qualified organization.
2. To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A. If your total deduction for all noncash contributions for the year is more than $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.
3. If you receive a benefit because of your contribution such as merchandise, tickets to a ball game or other goods and services, then you can deduct only the amount that exceeds the fair market value of the benefit received. 
4. Donations of stock or other non-cash property are usually valued at the fair market value of the property. Clothing and household items must generally be in good used condition or better to be deductible. Special rules apply to vehicle donations.
5. Fair market value is generally the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.
6. Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization and the date and amount of the contribution. For text message donations, a telephone bill meets the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution and the amount given.
7. To claim a deduction for contributions of cash or property equaling $250 or more, you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash, a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more. 
8. Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.

Standard Deduction vs. Itemizing: Seven Facts to Help You Choose 

Each year, millions of taxpayers choose whether to take the standard deduction or to itemize their deductions. The following seven facts from the IRS can help you choose the method that gives you the lowest tax.

1. Qualifying expenses - Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. If the total amount you spent on qualifying medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions is more than your standard deduction, you can usually benefit by itemizing.

2. Standard deduction amounts -Your standard deduction is based on your filing status and is subject to inflation adjustments each year. For 2011, the amounts are:
        Single     $5,800
        Married Filing Jointly   $11,600
        Head of Household   $8,500
        Married Filing Separately  $5,800
        Qualifying Widow(er)  $11,600

3. Some taxpayers have different standard deductions - The standard deduction amount depends on your filing status, whether you are 65 or older or blind and whether another taxpayer can claim an exemption for you. If any of these apply, use the Standard Deduction Worksheet on the back of Form 1040EZ, or in the 1040A or 1040 instructions.

4. Limited itemized deductions - Your itemized deductions are no longer limited because of your adjusted gross income.

5. Married filing separately - When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and therefore must itemize to claim their allowable deductions.

6. Some taxpayers are not eligible for the standard deduction - They include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months due to a change in accounting periods.

7. Forms to use - The standard deduction can be taken on Forms 1040, 1040A or 1040EZ. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions.

by Evie Alvarez
*adapted from The Tax Book - 2011 Tax Year

Executive Summary

An accountable employee reimbursement plan allows employers to reimburse their employees without having to add that amount to the employee’s income. It also allows the employer to expense the purchases, as allowable. However, certain guidelines must be followed in order to ensure that the reimbursements are allowable.

Why have an accountable plan?

The main benefit of an accountable plan (versus a nonaccountable plan) is that the reimbursement amounts are tax-exempt for the employee receiving the reimbursement. If the plan is nonaccountable, then the amounts are taxable income for the employee receiving the reimbursement.

Qualifications of an Accountable Plan

Employees must:
-          Have paid or incurred deductible expenses while performing services as an employee
-          Adequately account to the employer for these expenses within a reasonable period of time
-          Return any excess reimbursement or allowance within a reasonable period of time

Reasonable Period of Time

There is some variation, according the facts and circumstances of the situation, as to what qualifies as a reasonable period of time.  Following is a list of reasonable time frames:
-          The employer reimburses an expense within 30 days of the time the employee incurred the expense
-          The employee adequately accounts for the expense within 60 days after the expense was paid or incurred.
-          The employee returns an excess reimbursement within 120 days after the expense was paid or incurred.
-          The employer gives the employee a periodic statement, at least quarterly, that asks the employee to either return or adequately account for outstanding advances, and the employee complies within 120 days of the date of the statement.

Advanced Allowance

If the employer decides to pay the employer in advance of the employer actually incurring the expenses, the following requirements must also be met (in addition to the qualifications for an accountable plan):
-          Reasonable calculation of the allowance amount is done so as not to exceed the amount of anticipated expenses.
-          The employer makes the advance within a reasonable period of time.

Per Diem Option

Instead of an amount-specific reimbursement, an employer may choose to set-up a per diem allowance for travel, lodging, meals and incidentals. This could be based upon travel days, miles, or another fixed allowance. For rates, see: http://www.irs.gov/pub/irs-pdf/p1542.pdf

Please keep the following factors in mind:
-          Amount must not exceed the federal rates
-          Employees must substantiate the time, place, and business purpose of the trip
-          Employees are not required to submit receipts to the employer if using a per diem allowance

Practical Application

Within the above guidelines, there is flexibility as to exactly how your company sets up an accountable reimbursement plan. Following are a few examples of some practical applications.

Example 1

The employer requires the employee to submit reimburseable receipts within 2 weeks of the date the expense was incurred, along with an explanation of the expenses’ business purpose. The employer then writes a check to the employee for the amount of the expense. The employer retains records of the expenses and reimbursement.

Example 2

An employee travels out-of-town. The employee provides the employer with the time, place, and business purpose of the trip to be reimbursed. The employer writes a check for the employee, based upon the federal per diem rate for that location. For rates, see: http://www.irs.gov/pub/irs-pdf/p1542.pdf

Example 3

The employer assumes that the employee will have reimburseable expenses. After a reasonable calculation for the expected expenses, the employer pays money to the employee. At the end of the month, the employee provides the employer with receipts for the expenses and any excess allowance.

Corporate Policy

However your corporation structures employee reimbursement, it is important that the policy is part of the corporate documents. Having the policy on file will help in the case of any IRS scrutiny.

Taxable or Non-Taxable Income? 

Although most income you receive is taxable and must be reported on your federal income tax return, there are some instances when income may not be taxable.

The IRS offers the following list of items that do not have to be included as taxable income:

• Adoption expense reimbursements for qualifying expenses
• Child support payments
• Gifts, bequests and inheritances
• Workers' compensation benefits (some exceptions may apply; see Publication 525, Taxable and Nontaxable Income)
• Meals and lodging for the convenience of your employer
• Compensatory damages awarded for physical injury or physical sickness
• Welfare benefits
• Cash rebates from a dealer or manufacturer

Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your taxable income are:

• Life insurance If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are generally not taxable unless the policy was turned over to you for a price.
• Scholarship or fellowship grant If you are a candidate for a degree, you can exclude from income amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify for the exclusion.
• Non-cash income Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.

All other items—including income such as wages, salaries, tips and unemployment compensation — are fully taxable and must be included in your income unless it is specifically excluded by law.

These examples are not all-inclusive. For more information, see Publication 525, Taxable and Nontaxable Income, which can be obtained at the IRS.gov website or by calling the IRS at 800-TAX-FORM (800-829-3676).

IRS audits of small business software files

Practitioners should balance risk for their clients.
BY JIM BUTTONOW, CPA/CITP
JANUARY 2012
 
Tax practitioners have always been cautious with the records they provide to the IRS in an audit to control the depth of an IRS inquiry. But IRS agents are starting to request client backup files from small business accounting software such as QuickBooks and Peachtree, and many practitioners are concerned about how much information the IRS is requesting and how it is using that information.
 
This article explores the IRS’ legal authority and long-standing use of electronic records in audits and takes a closer look into how the IRS requests and uses electronic files. It offers tips for CPA practitioners in responding to IRS requests for small business accounting files and for their clients in adjusting bookkeeping practices to minimize undue IRS inquiry during a small business audit.
 
In October 2010, partially at the request of tax practitioners during IRS focus groups, the IRS announced it was expanding its audit capabilities by training agents to be proficient in auditing information from files of accounting software commonly used by small businesses. According to the IRS, it has trained 1,100 revenue agents and has given them copies of the software to become proficient in using them and other programs in the future. It also encouraged agents to start requesting electronic files from taxpayers and practitioners. According to the IRS, the push to start using small business accounting files in audits originated with feedback from tax practitioners in 2008 focus groups. Practitioners indicated they wanted the IRS to be more efficient in examining records and reduce the volume of paper involved in audits. The IRS saw this as making audits more efficient for its agents as well.
 
IRS AUTHORITY TO REQUEST ELECTRONIC RECORDS
It’s clear in IRS regulations and precedent that electronic records can be requested and used in audits. Sec. 6001, Regs. Sec. 1.6001-1(a), Rev. Rul. 71-20 and Rev. Proc. 98-25 give the IRS broad authority to examine electronic records to establish the taxpayer’s correct tax liability. Regs. Sec. 1.6001-1(e) requires the taxpayer to make these records “at all times 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.” Rev. Proc. 98-25 clarified that the IRS has a right to electronic records.
 
The taxpayer must provide the electronic records upon request. If a taxpayer attempts to withhold them, the IRS may disallow all of the items that are unsubstantiated as a result of the decision to withhold the files—or it may summon the records.
 
SUMMONS POWER UPHELD
In June, the IRS prevailed in a summons enforcement case in U.S. District Court (Rouse, No. 8:11-MC-00046-T-24AEP (M.D. Fla. 6/27/11)). The IRS had requested the taxpayer’s QuickBooks backup files. The taxpayer refused to comply, and the IRS enforced the summons. The judge in the case summarily ordered the taxpayer to turn over the records to the IRS, citing Secs. 6001 (records required) and 7602(a) (IRS summons authority), and concluding the IRS had met the good-faith requirements for enforcing the summons under Powell, 379 U.S. 48 (1964). However, many facts of the case remain unclear, including whether the taxpayer offered alternative records to the IRS in lieu of the electronic files. In its decision, the Rouse court reiterated the right of the IRS to have original books and records: “A plain reading of § 7602 reveals that the I.R.S. may ‘examine books, papers, records, or other data which may be relevant or material to such inquiry …’ 26 U.S.C. § 7602(a)(1) (1998) (emphasis added). The Court finds that ‘other data’ under § 7602 includes the electronic backup files at issue, and thus, the summons is appropriate.”
 
IRS GUIDANCE
Although the courts are helping define this emerging issue, the IRS clearly has the largest stake in guiding agents and tax practitioners in how to comply. On Sept. 1, the IRS Small Business/Self-Employed (SB/SE) division issued a field directive memo (SBSE-04-0911-086) for agents and auditors about how to request, review and protect taxpayer backup files. It also updated a set of frequently asked questions (FAQs) at tinyurl.com/68gt5kb.
 
The memo instructs examiners to generally request a copy of the taxpayer’s original software backup file but to use professional judgment when determining which records to request. For example, agents would likely request files in larger-scope audits (such as when verifying gross income), but they probably wouldn’t request files in an audit of one expense item, according to the FAQs.
 
The IRS memo instructs agents to limit their review to information relevant to the year under examination. However, if the IRS is examining certain issues, such as accrual accounting or reconstruction of income, then it might review relevant data from other tax periods, according to the FAQs. Based on the results of an examination, the IRS also might expand the scope of an audit. In that case, the IRS would notify the taxpayer and use the available records. These updates leave room for IRS agents to determine when to examine prior- and subsequent-year data.
 
The IRS also mentioned that agents would not use the files for any purposes other than the examination and that the information is not disclosable to the public. The IRS stated that, if the file has “privileged information,” such as information protected under the Health Insurance Portability and Accountability Act of 1996, the representative should speak to the IRS agent about redaction. At this point, it appears that the IRS will not endorse any redaction. However, a discussion with the agent might be warranted to determine what could be redacted.
 
WHAT REVENUE AGENTS ARE LOOKING FOR
IRS auditors prefer reviewing and assessing the original books of entry—not translated or interpreted versions—to evaluate audit trails and the reliability of records.
 
Audit trails are critical in IRS examinations. The auditor can view dated transactions, subsequent changes, and the user name of the person who entered or changed a transaction. This information is directly relevant to the evaluation of the taxpayer’s accounting system and internal controls.
 
On May 27, the IRS modified its Internal Revenue Manual (IRM) to provide guidance and rules on how revenue agents should evaluate taxpayers’ electronic books and records. The IRS description of electronic books and records also includes taxpayer websites, e-commerce activities and Web marketing material, which the IRS finds useful for audit trails in tracing income, such as e-payments.
 
Some practitioners are concerned that taxpayer adjustments in business software files may raise red flags with the IRS unnecessarily, requiring more time and expense to explain them. They are concerned that the IRS will jump to conclusions by perceiving corrections of bookkeeping errors as attempts to manipulate books and records.
 
Practitioners face a dilemma. They want to supply the agent with the information needed, but many are concerned about turning over the entire backup file to the IRS.
 
FILE REDACTION
The IRS has commented publicly about taxpayers’ providing redacted prior-year files. On April 20, Chris Wagner, chief of the IRS Office of Appeals, addressed the redaction issue in a letter to the AICPA. In the letter (available at tinyurl.com/3rza5h6), Wagner confirmed the long-standing position of the IRS to have original documentation in an audit:
[I]t is important an exact copy of the original electronic data file be provided to the examiner and not an altered version. 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 through use of such means as reports generated by the software program that may help to identify deleted or altered entries.
Wagner said that it’s acceptable for practitioners to “condense” prior-year information “as long as the condensed data does not include transactions created or changed for time periods under audit, or for transactions from prior years that have an effect on the years under audit.” The IRS published its approval of this position in its FAQs, where the Service also pointed out that, if the audit scope is expanded, the agent might request a backup file created before the file was condensed or a copy of the archive file created during the condensing process.
 
Wagner also noted a software limitation best solved by software companies—allowing single-year files in the backup process. Wagner suggested that, before a long-term solution is found, taxpayers should consider making their own backup files for individual years.
 
The AICPA hosted a meeting Sept. 8, with IRS officials and software developers about ways to minimize the amount of electronic data provided to the IRS during an audit. The AICPA discussed the need for software changes that would enable small business taxpayers to provide only information that is directly relevant to an IRS audit.      
 
On Sept. 1, the IRS director, examination, provided guidance on requesting backup files when taxpayers or practitioners assert they cannot comply because the backup file contains privileged communications. The memo (SBSE-04-0911-086) suggests in either case examiners contact their local IRS counsel for assistance. “Generally, a customer list would not be privileged but there may be unusual circumstances in a particular case that could possibly make the information, when combined with other information, privileged,” the memo stated.
 
Danny Snow, CPA, immediate past chair of the AICPA IRS Practice & Procedures Committee, is interested to see how the IRS will approach the issue of redacted files. “We are aware that CPAs are providing selective data,” he said. “We are waiting to see if the Service challenges the altered files because critical audit trails may be deleted when providing the selective data.” Snow said that the IRS has used restraint so far and that the new SB/SE commissioner, Faris Fink, appears to want to work closely with the AICPA on this issue.
 
THE IRS IN TRAINING
For most IRS revenue agents, using electronic records in small business audits is a relatively new approach, becoming increasingly prevalent since October 2010. The IRS has more than 14,000 agents, and only 1,100 have been trained in the use of QuickBooks and Peachtree. Clearly, this IRS audit technique is in its infancy. There’s evidence in current audits that the IRS is still learning how to use these electronic files and, as a result, has not established a standard operating procedure.
 
An IRS representative at the IRS Tax Forum Aug. 16–18 in Las Vegas commented on IRS procedure for requesting and reviewing electronic files in audits. In a seminar titled “Auditing with Electronic Accounting Software,” the representative detailed how the IRS requests records and how they should be supplied:
 
The IRS uses Form 4564, Information Document Request, to request software backup files (along with the administrator user name and password) from the taxpayer or representative.
The file must be provided by DVD, CD or flash drive—and not by email. If the practitioner mails the storage media, the IRS recommends that the file be encrypted and the password be sent separately.
The IRS will use the files to test the integrity and veracity of the accounting records—to test the business’s internal controls. This is always the first step for examiners, but they can do it more quickly and thoroughly using electronic records.
 
One tax forum participant asked how the IRS would proceed if a person other than the taxpayer or the representative had done the bookkeeping and refused to release the backup file as “proprietary” information. The IRS would summon the file, according to the IRS representative. The participant voiced concern that the IRS would have a copy of the file but the taxpayer would not—a situation the IRS representative characterized as a civil matter not involving the IRS.
 
As for reviewing the electronic files, the IRS representative echoed other IRS statements that the agent would review only data relevant to the years under audit, which could include data from other periods as long as they relate to the audit scope. The representative also said that the IRS examiner needs supervisor approval to expand the audit scope to additional years, and that the taxpayer would be notified in that case.
 
Some CPAs are optimistic that using electronic files could streamline the audit process. Other practitioners have experienced an IRS learning curve with their small business clients who have been audited.
 
REPRESENTING SMALL BUSINESS CLIENTS
Practitioners do not want to impede an examination and violate Circular 230, Section 10.20, by refusing to provide requested records to the IRS. However, practitioners have a duty to protect their clients by not providing more than what the IRS requests.
 
Here are some tips to protect clients from unnecessary inquiry and audit depth:
 
Keep audit trails on. Practitioners do not want the IRS to perceive that their client’s internal controls are weak. When the IRS requests records with associated audit trails, all of a taxpayer’s recording errors are exposed, and the agent can make conclusions based on entries that are reversed or corrected. Errors and corrections are common for many business owners who purchase programs such as QuickBooks to save on bookkeeping fees. If the IRS concludes that a taxpayer’s controls are weak, the IRS may expand the audit.
 
Some practitioners have suggested that their clients turn off the audit trail indicator on QuickBooks. Regardless of the reason, that approach is not advisable, because it will immediately raise the audit agent’s suspicion.
 
Keeping audit trails active also supports the IRS’ preference for contemporaneous recordkeeping. However, when there’s an error in an entry or account, the taxpayer or accountant should document several items: the erroneous entry, the correction and an explanation of the correction. The taxpayer should also include documentation to support the correction, especially for large and unusual items. When the IRS questions the corrected entries, the taxpayer can provide the documentation to demonstrate to the agent that he or she is an effective bookkeeper and that the records are trustworthy.
 
During tax preparation, create a new workpaper highlighting any large, unusual or frequently examined entries that have been corrected. Maintain the explanations in your client’s records to document your due diligence and reduce your risk.
 
Set limits, if possible. Be cautious when providing only the data for the year under audit by condensing transactions in nonaudit years. Discuss your concerns with the IRS agent or his or her manager before fulfilling the document request with the backup file. Explain in writing to the IRS exactly what you will be condensing. In the future, create separate backup files for each year. Be clear when responding to the IRS information document request about exactly what data you are providing and not providing.
 
You could also ask the IRS agent whether he or she will accept an alternative, such as printouts of accounts with detailed explanations. Before 2010, that was the method used in most SB/SE audits. Explain to the agent why it is a better approach; after all, it is how the return was prepared.
 
If your client has used QuickBooks utility programs such as QB or not QB to remove prior-year data, explain in writing to the agent exactly what was done when you provide the file. A word of caution: The IRS could view the use of these kinds of software products as the equivalent of not turning over the full software file. Warn your clients that providing less than the full file to the IRS might encourage the perception that they are attempting to hide something or have stripped out data that might be relevant to the audit.
 
If your client is a poor bookkeeper, request that he or she relinquish that duty to someone who is more qualified. You can encourage your client by explaining that the IRS may review every right or wrong keystroke in an audit. Encourage them to follow a good, old-fashioned cliché: “Measure the transaction twice, post the entry once.” This also makes the CPA year-end audit easier.
 
If possible, consider consolidating your client’s electronic systems into one complete system. Use of several systems confuses the IRS and adds complexity in an audit. Using one system to record revenue and another to record payables is confusing for everyone.
 
Be upfront with the IRS and your clients. Snow, the AICPA committee member, suggested that practitioners visit with the IRS group manager to discuss the need for the electronic files, and if your client is adamant about not turning over the complete files, meet with the territory manager. If your client authorizes providing the electronic files, Snow suggested noting the authorization in the engagement letter. “If you’re representing a client who does not want to turn software files over to the IRS, be sure you don’t violate Circular 230,” he said. 
 
THE OUTLOOK FOR ELECTRONIC FILES IN IRS AUDITS
It appears the IRS is advocating restraint in how its agents examine electronic files. However, the IRS has been clear that it expects full access.
 
Practitioners should always exercise caution in representing their clients. As audits of small businesses continue to increase, practitioners will need to closely monitor entries on their clients’ books and records to protect them from unnecessary inquiry by IRS agents. Practitioners should also carefully observe how the IRS uses these files as agents become more comfortable using electronic records.
 
When it comes to electronic files in small business audits, practitioners can take advantage of the tips provided in this article and continue to use the best practices they already know: Balance risk, follow professional judgment and look to the IRS for updates and guidance.
 
Editor’s note: Portions of this article originally appeared in the July/August 2011 edition of the Tennessee CPA Journal and are reprinted with permission from the Tennessee Society of CPAs.
 

EXECUTIVE SUMMARY
 
 In its examinations of the returns of small business taxpayers, the IRS is increasingly requesting electronic files of accounting programs such as QuickBooks and Peachtree. While taxpayers and their CPA tax preparers must be responsive to these requests, they must also take care to provide no more taxpayer data than a request reasonably covers.

  The IRS has instructed its examiners to generally request a copy of taxpayers’ original backup files for audits of such potentially wide ranging items as verifying gross income, although it has indicated a request may not be necessary with respect to a single expense item. Examiners also should limit their requests to the tax year under examination but will request records of other years when needed to verify a current-year item from prior- or subsequent-year accounting.

 Although the IRS has issued no specific guidelines regarding privileged information in a file, such as medical records, guidance indicates some redaction may be possible with the consent of the examiner.

Jim Buttonow (jbuttonow@newriverinnovation.com) is co-founder of tax technology company New River Innovation in Greensboro, N.C.