To quote one of our Founding Fathers Benjamin Franklin, “… nothing is certain except death and taxes.” If he only knew how well this statement would endure the test of time.
“In the world of tax, the best defense is a great offense.”
indirect tax revenue
On average, two-thirds of a state’s revenue comes from indirect taxes, most of which is in the form of sales, property and payroll, among others. With several states experiencing a decrease in revenue in 2023 over the same reporting period in 2022, expect an increase in audit notices in 2024.
audit strategy
In preparation for a tax audit, a self-review and internal audit is the recommended best practice. Specifically as related to audits, the best defense is a great offense. Do your due diligence in advance - review accounts that are typically areas of exposure and risk, as noted on prior audits. Review prior auditors’ findings and assessments to confirm that the recommended changes and process improvements have been properly implemented.
VOLUNTARY DISCLOSURE AGREEMENTs
If after a self-review or internal audit your company determines it has tax exposure, depending on qualifying circumstances, a Voluntary Disclosure Agreement (VDA) may be an option.
Although eligibility and benefits vary by state, some benefits of a VDA include a limited look-back period, full penalty abatement, and the ability to file all outstanding returns via a schedule instead of individual monthly returns.
PENALTY ABATEMENT Letters
If it turns out that your company is ineligible for a VDA, perhaps a straightforward penalty abatement request letter is more suitable. With this type of request, a Department of Revenue will consider the appropriateness of a “reasonable cause” or “good faith” position to determine whether to grant a penalty waiver request, depending on that particular state’s statutory requirement.
Unfortunately, it should be noted that some states, Indiana for example, limit its penalty waiver approvals to a single month, some like Wisconsin require a request be filed within 60 days from the date of notice, and in the case of Washington, as relayed directly by an auditor, anything short of a “volcanic eruption where the lava flow impacted the taxpayer’s physical office” will be grounds to deny a penalty request.
audit defense
We have extensive experience with audit defense and welcome the opportunity to assist you with yours. Know what you owe, thoroughly build your defense, and have us on your team.