To increase state revenues without increasing tax rates, many states have been implementing more audits to be sure businesses are paying what they owe for sales taxes. They use a system that allows them to predict which businesses would be the best potential candidate for a sales tax audit.
If your business ever becomes the focus of an audit this blog lists a few tips for how to handle the situation. You will find some tips on what to do before, during and after the audit takes place.
Before the Audit
- When you are first in contact with the auditor, it is important to cooperate with any questions he or she might have. This initial meeting will set the tone of the entire audit.
- Be sure to keep record of all communications to and from the auditor. You want to be able to have a clear history of agreements and conversations in case you should have to refer back to any of them.
- You will most likely be asked by the auditor to sign a waiver for the statute of limitation; this will allow the auditor more time to complete the audit past the statute of limitations. This can be a good thing because it allows you more time to be sure you have all necessary documents needed for your case; it also keeps the auditor from being rushed and forced to take an aggressive approach for assessment.
During the Audit
- It is important to establish guidelines for the audit, and supply the auditor with this information ahead of time. Things to include are office hours, person to contact for the business, any security they need to know about and a request to supply you with copies of all workpapers.
- If the auditor is seeking information, you should find out why he or she is requesting the information to make sure the records you will be giving are the most suitable to address the question.
- It may be in your best interest to have a third-party represent you in the audit. Not only are they able to bring expertise and experience to the table, they also remove the emotion from audit negotiations.
After the Audit
- Once an assessment has been made, it is important to consider all venues for appeal that are available in the state and select the one with the best combination of favorable attributes.
- If you receive an adverse determination at appeal, you and your third party adviser should explore opportunities to request reconsideration and/or settlement through an offer in compromise or similar authority.
- Once the audit is complete, be sure to evaluate the issues that drove the assessment in order to implement changes that will keep these problems from reoccurring.
Dealing with auditors can be nerve-racking as a business owner. It is strongly recommended to have representation before the government agency to keep the situation as professionally handled as possible. By following these tips and getting assistance for the audit, you stand the best chance to have a favorable outcome. Contact your accountant today if you have a possible audit coming your way!