Audit Representation

Are you or your company currently being audited or about to be audited by a state and local tax agency and concerned about being treated fairly?

Having an advocate who is experienced in dealing with state and local tax agencies can impact the outcome of an audit. The proper presentation of facts and a critical understanding of the state and local tax lax laws, regulations and audit policies are essential. The time spent preparing for a tax audit can be a daily distraction and a source of frustration but it does not have to be. Goldstein Jones LLP is here to lift your burden, at the audit level and through the appeals process.

What should you expect to happen during an audit? Auditors are essentially tax detectives. Their purpose is to discover non-compliance with tax laws. Auditors will request many documents from the taxpayer including bank statements, credit card statements, utility records, tax returns, general ledgers etc. It is not uncommon for auditors to request and review real estate and business contracts, wills and other legal documents. As one might imagine, the audit process can be very intrusive. Auditors will sometimes interview the taxpayer or persons employed by the taxpayer’s business to gain information that can be used to support a tax assessment. Information provided during interviews should be limited to that which is essential to the issues addressed by the audit. The tax department can also subpoena records. There is a fine line between being cooperative and providing too much information.

Your representative should seek to limit the scope of the audit to documents that are essential to the issues presented during the course of the audit. Sometimes, it may be helpful and necessary to provide the auditor with documents that contain highly personal or sensitive business information. It may be necessary to redact personal or sensitive documents. It may be advisable to ask the auditor to review documents that they have not themselves requested. This is because it is legally the taxpayer’s burden to prove that the proper amount of tax has been paid (contrast this with criminal law where the government has the burden of proving that the defendant has committed a crime). Your representative should consider the effect of providing information on both the outcome of the audit and the outcome on tax appeals via mediation or tax court. Remember that to a significant extent, the information provided to the auditor (including letters and other correspondence with the tax department) can and will be admitted into the appeals record should the matter be presented for appeal in the tax court.

So what are typical audit results? The result of an audit can be a “no change”. This is the second best audit outcome. A no change result means that the auditor has determined that the correct amount of tax has been paid. The best possible audit outcome is a refund. Finally, the auditor may determine that tax is owed. The taxpayer will receive a notice of tax and interest due. The date that notice is given is critical as it typically starts the clock running on the deadline for filing an appeal. If the deadline for filing an appeal is missed the taxpayer will be required to pay the tax and interest (and penalties if applicable). Failure to pay the amount assessed will result in collection activities including liens, levees and garnishments (after payment, the taxpayer may choose to file a refund claim before the refund filing deadline). Interest is always charged on unpaid taxes. Penalties may be imposed as well. In the event that penalties are imposed, the representative should negotiate for abatement.

Call us today at 212-232-2410 or contact us online to discuss your options.