Academic journal article Journal of Accountancy

IRS Wants Company's Tax Return Software

Academic journal article Journal of Accountancy

IRS Wants Company's Tax Return Software

Article excerpt

The Eighth Circuit Court has ordered enforcement of the first Internal Revenue Service summons seeking the software a taxpayer used to prepare its consolidated federal income tax return (United States v. Norwest Corporation [no. 96-2792, CA8-June 26, 1997]). The IRS believes that the software -- particularly its underlying "code" -- will provide greater insight into the company's complex computations, such as those used to compute its allocations figures. Norwest, a large bank holding company, licensed Tax Director, a suite of tax preparation programs, from Arthur Andersen & Co.

Responding to the IRS request, Norwest and Andersen went to some lengths to provide the IPS computer with files and software, other than Tax Director, that would allow the IPS to tie the company's tax return to the company's financial data. The IRS was not satisfied and issued a designated summons for preparation programs (a designated summons suspends the statute of limitations). A magistrate ordered enforcement with certain limitations intended to protect Arthur Andersen's proprietary interest in Tax Director. With some modifications, the federal district court affirmed the magistrate's order.

In their appeal, Norwest and Andersen argued that Tax Director was not the proper subject of a summons because the program was merely a tool, akin to a calculator, that contained no information regarding the taxpayer. …

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