The trying, grueling and exhausting process of a Tax Audit is finally over. But what happens if you do not agree with the outcome of the audit? On top of taxes, the auditor also calculated penalties and interest to add to the money you don’t owe, or you cannot afford. Sometimes the overinflated assessment is a result of poor auditing techniques. Other times a large assessment can result in the audit double-dipping or using bad periods for your business to predict other periods. Many times, there is a discrepancy as to whether your business is even selling taxable items or services, or you just could not produce records timely enough to prove the taxability of certain items. There may even be a controlling case that even the tax auditor is unaware of. Fortunately, state and local tax consultant and other professionals can challenge the findings in some way.
Even most good tax professionals out there do not deal with taxes enough to really know the ins and outs of both the tax laws and the administrative procedure of fighting an audit assessment. Our firm primarily handles state and local taxes and is used to the ins and outs of the issues and the procedures to help reduce your assessment. As state and local tax lawyers, we challenge the Department of Tax and Fee Administration and other state agencies on a regular basis. We often assist with audits, protests, and resolving tax disputes at the administrative court level. Simply put, this is what we do each and every day.
Contact our offices for a FREE INITIAL CONSULTATION with a consultant with experience in state and local tax matters. During our consultation we will review your tax audit and discuss ways in which we can get you the results you are looking for. We regularly are able to reduce the tax, penalties and interest. Whether you hire our firm or not, we offer a quick and honest evaluation, so you can proceed as you deem fit. To get your tax, penalties and interest reduced with the Department of Tax and Fee Administration.
Defend Your Rights at All Stages?
The Audit – the end of an audit results in a sales and use tax audit report, which lays out the auditor’s findings. If you cannot agree with the auditor on the findings, a notice, such as a Notice of Determination, will be issued. Auditors are often trained to take a shotgun approach and the notice of field report or investigation can be alarmingly high. It is not time to hit the panic button yet! The report along with audit findings gives you a detailed road map of what the auditor thinks is taxable and, if you know how to understand the document, what you need to do to challenge the assessment. If you or your accountant have handled the audit to this point, now is the best time to bring in a consultant experienced in Tax Controversy for a free consultation and to help negotiate on your behalf with the auditor.
REQUEST TO EXTEND THE STATUTE OF LIMITATIONS: Even after the auditor issues the audit report, the audit still may go on. A supervisor in the state’s revenue agency may decide additional work needs to be done or additional transactions are subject to tax. However, the Statute of Limitation period is still running, and the auditor may request an extension of time. You may be giving up valuable rights by agreeing to extend or waive the statute of limitations and you should consult with an expert before agreeing to waive any of your rights.
PROTEST THE AUDITOR’S ASSESSMENT: After the audit and the audit report has been issued, the next official step for the agency is to formally issue the auditor’s proposed or final assessment. Once issued, the assessment must be challenged within a short timeframe, usually 30-60 days. Such a deadline is critical, and you may give up important rights by not fighting the audit within that timefram If you have received a NOD and have not at least talked to someone experience in State and Local tax, now is the time before you are out of time. Following the outcome of the agency appeal process the next step is to challenge in administrative or tax court.
NEED TO MAKE AN OFFER TO SETTLE YOUR TAX LIABILITY? During the redetermination period the agency will entertain offers to settle the case. Often times, you can get better results here than with the auditor. If you or your professional seldom does state and local tax work, it might be difficult to evaluate fair versus unreasonable settlements. DO NOT try to negotiate a settlement without an experienced state and local tax consultant.
FILE A FORMAL PROTEST WITH THE IN ADMINISTRATIVE OR TAX COURT : If you cannot get the case resolved with agency then you may have to file in the Administrative or Tax Court Administrtaive or Tax Court is often a more efficient way for taxpayers to avoid having to go the more expensive judicial court route. However, this is a court-like proceeding, and while not required, you really should have a state and local tax consultant handle the case..
CONTEST A JEOPARDY ASSESSMENT: The state may issue a Notice of jeopardy Determinations in certain situations. The jeopardy assessment gives the agency some accelerated rights and may immediately begin to try and collect. Due to the jeopardy nature, the taxpayer only has 10 days to contest the assessment and must place a security deposit to fight the issue.
You may, within the time allotment indicated on the notice, apply for an administrative hearing, but this does not stop collection activity.
OFFER IN COMPROMISE: Most state agencies allow offers in compromise. An offer in compromise is a different procedure because it usually requires a final tax liability and an offer to settle that liability for some lesser amount. To qualify for the OIC program, states usually have specific gudielines, such as a closed account (ie-liability outstanding), you are not disputing the liability in the agency or in the court, you are not currently in bankruptcy, and you are unable to pay the full amount.
Texas Sales Tax Audit FAQs
You inadvertently waived a red flag or your company landed in the small percentage selected for a random Texas sales tax audit. These red flags include: cash-based businesses, prior audits that resulted in owed sales tax, your sales reported to the state didn’t match what you reported to IRS, a high volume of exempt sales, filing a refund claim or a high number of credits. There’s also a possibility that your business happens to be in an industry that your state suspects rampant under-reporting. Often times, they will target industries effected by complex sales tax laws. Learn More
1. RESPOND to the notice
2. Get organized
3. Identify/Hire your audit manager
4. Notify your auditor of who they will be corresponding with
5. Compare your sales tax returns against the federal tax return
6. Test at least one month of exempt sales
7. Reconcile your sales tax payable account versus your sales tax payments
8. Review your fixed assets purchased, did you pay sales tax on them?
9. Review your purchases on your key expense accounts to ensure tax was paid on your purchases
10. Look at our complete list that explains these steps in more detail: here
Audit duration can vary dramatically from state to state and from business to business. Waiver issues aside, an audit generally takes 3-7 months to complete. Surprisingly, some audits can drag on for a few years. Time factors usually swing on the size of the company, the ability to produce reliable and organized documentation, and the level of sophistication of the business.
We all enjoy the occasional DIY project especially when it saves us money, am I right? Before opting to go that route, consider the risk vs. rewards involved. Avalara recently conducted a study and found that the average sales tax audit costs around $115,000. When facing a sales tax audit it is beneficial to have the expertise of the financial implications on your side. That is where Sales Tax Professionals such as SalesTaxHelper can save you a lot of heartache and money by avoiding a few missteps. Learn More
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