Electronic documents and paperless solutions are supposed to help make our lives easier. By eliminating the paper documents and working with electronic ones instead, users would be able to efficiently manage all their valuable information in one place. Even more, this information could be shared electronically (swiftly and simply) with others. However, as most advancements in technology have demonstrated, every solution comes with its own new set of problems. Where accounting and taxes are concerned, tax payers and the IRS alike are dealing with the impacts of accounting for and substantiating “cashless and paperless” transactions and other activities. It seems that the IRS is spending more time and resources (=money), expecting that a frontal assault armed with digital records will provide a basis for improved tax collections.
“If you’ve recently been involved in an IRS audit of a business, you have likely seen the agent enter the room fully prepared with copies (subpoenaed) of bank statements and other documentation. It used to be the tax payer who had to provide all the documentation, and the auditor simply used that material. These days, it has become too easy to falsify or improperly change information in electronically stored files (using Photoshop or other tools), so the IRS has lost trust in the data tax payers provide. Instead, they spend a great deal of time and resources collecting this information for themselves (because they can), and then use their copies of the data to compare the data provided by the tax payer.
The IRS will accept electronic records in lieu of original paper documents in many cases, and this is often because they have an ability to validate the content of the electronic records through comparison. Yes, the IRS can collect electronic banking information from financial institutions and other sources, just like the account holder can. It’s become more of a “guilty unless you can prove you’re innocent” approach, and puts the tax payer in a purely defensive posture. Even more, it assumes the tax payer has the sophistication and tools necessary to access and manage all of that electronic data effectively.”