Inadequate Records

IRS Definition

Every taxpayer is required by law and regulations to maintain records with sufficient detail to prepare a proper return. This may require the maintenance of such permanent books of account and records sufficient to establish the amounts of gross income, deductions, credit, or other matters to be shown on the taxpayer’s return.

Inadequate Records Notices place taxpayers on notice that their recordkeeping practices are deficient and must be improved to meet the requirements of the law. The issuance of an Inadequate Records Notice may result in a follow-up examination and is a tool to enforce taxpayer compliance with legal requirements to keep adequate records and properly report tax liabilities.

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When the IRS audits a business tax return, part of the audit process is reviewing the business’s books and records. If the records the auditor reviews are not adequate for the auditor to determine the income and expenses for the business, an inadequate records notice (Letter 979) will be issued. This notice gives the business six months to improve its record keeping and contact the IRS with its new procedures. If the business does not contact the IRS with information about its improved procedures, another audit is likely.

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