IRS demanding complete accounting files from small businesses

Well, they certainly can get a warrant for the records. And to be honest, it's not like they wouldn't see the same data when they look at the hard copy of the invoice or bill. And you know where it goes if you refuse to provide documentation on your expenses, they deny the deduction and it's off to court where folks get to pour over your books and records.

And really, some of my clients QB data is in shambles. We know it. We're the ones tweaking their books or taking the raw data and entering it into our own software to generate more accurate financials. We know what they do. They book the entire car payment to vehicle expense, and the entire loan payment goes to interest, and.....they certainly can find, let's just say "creative" ways to record what to us is a very simple transaction.

can they? I doubt it. They can only get a warrant for relevant information. Actually, it would be a subpoena, and subpoenas are quashed or restricted all the time.

If they question a deduction, they can deny it, and/or ask for sufficient supporting documentation. That is all.

Actually, in a non-criminal examination, it would be a Summons, which is enforceable and quashable in the District Court.

As to the sufficiency and reasonableness of documentation, one can look to the Internal Revenue Manual. Beyond all of the hype over IRS power and demands, IRS employees are held accountable for their compliance with rules and procedures as outlined in the IRM. This is about the only game in town where the opposing team makes its playbook available for all to see. Anyone providing representation before the IRS who is not knowledgeable of the relevant sections of the IRM is, imo, doing his or her client a great disservice.

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It's actually called a summons. IRC 7602 & 7609 (the latter for 3rd parties). I did the 7609-type twice during my IRS career. I did not do a 7602-type.

It is generally prepared by the examining agent, and signed by that agent's manager. Enforcement or objection (i.e. motion to quash) goes to the U.S. District Court.

They can only ask for information relevant to their investigation. If they want to see customer lists then they need to get a warrant.

BEGIN QUOTE IRC 7602

(1) To examine any books, papers, records, or other data which may be relevant or material to such inquiry;

END QUOTE

Also,

BEGIN QUOTE IRC 7609

(g) Special exception for certain summonses A summons is described in this subsection if, upon petition by the Secretary, the court determines, on the basis of the facts and circumstances alleged, that there is reasonable cause to believe the giving of notice may lead to attempts to conceal, destroy, or alter records relevant to the examination, to prevent the communication of information from other persons through intimidation, bribery, or collusion, or to flee to avoid prosecution, testifying, or production of records.

END QUOTE

The above suggests it is OK to redact/remove information not relevant to the examination, such as customer lists, but you can't tamper with the books.

Besides, your files may be password protected. You don't want to give out your passwords as you may use the same password for different websites.

The gathering of information in a non-criminal IRS matter is not a search and seizure issue - warrants are not applicable. Search the IRM Chapter 5 Summons Handbook and you'll not find any reference to warrants.

Look here

guidance given AUSAs defending a petition to quash or prosecuting a petition to enforce a summons. Plenty of discussion and cites regarding summons requirements. This paragraph stands out as to relevancy of the information being sought:

"The relevancy test for a summons is a relatively low one, but it is not non-existent. The Government must establish that there is some realistic expectation (more than an idle hope) that the summoned information may be relevant to its investigation. Although the summoned documents or information need not meet the evidentiary relevancy requirement for admissibility, the Government should show some logical connection between the information sought and the purpose of the exam. In most cases, the potential relevance of the summoned information is self-evident. In other instances, an explanation may be helpful."

According to this excerpt, even attorney-client privilege does not always protect the identity of clients:

"Matters such as the client's identity, engagement letter, retainer agreement, or fees are generally not privileged. See, e.g., United States v. BDO Seidman, 337 F.3d 802, 811 (7th Cir. 2003) (client identity); United States v. Leventhal, 961 F.2d 936 (11th Cir. 1992) (fees); United States v. Blackman, 72 F.3d 1418 (9th Cir. 1995); United States v. Abrahams, 905 F.2d 1276, 1283 (9th Cir. 1990) (names of tax preparer attorney's clients and his fees were not confidential communications protected by the attorney-client privilege with respect to IRS summons); Lefcourt v. United States, 125 F.3d 79 (2d Cir. 1997); United States v. Ritchie, 15 F.3d 592 (6th Cir. 1994) (same); Chaudhry v. Gallerizzo, 174 F.3d 394, 402 (4th Cir.

1999); Clarke v. Am. Commerce Nat'l Bank, 974 F.2d 127, 129 (9th Cir. 1992); but see United States v. Liebman 742 F.2d 807 (3d Cir. 1984) (holding IRS could not summons names of clients lawyer had advised could take certain deductions)."