Contacted for Audit:Contacted for Audit: What to Expect What to Expect

November 13, 2013November 13, 2013

Presented by Tennessee Department of Presented by Tennessee Department of RevenueRevenue

What is an Audit?What is an Audit?

Review or examination of a Review or examination of a

taxpayers books, records, accounts taxpayers books, records, accounts

and/or financial informationand/or financial information

Ensure information is reported Ensure information is reported

correctly and according to tax lawscorrectly and according to tax laws

Verify the tax reported is accurateVerify the tax reported is accurate

Audit SelectionAudit Selection

Computer screeningComputer screening

Document matchingDocument matching

Related examinationRelated examination

Knowledge basedKnowledge based

SEATA referralsSEATA referrals

Audit NotificationAudit Notification

First, by telephoneFirst, by telephone

Then, confirmation by mailThen, confirmation by mail

Telephone ContactTelephone Contact

Who prepares the returns? How long?Who prepares the returns? How long?

Who will auditor work with?Who will auditor work with?

What is your service or business type?What is your service or business type?

How many locations?How many locations?

Telephone ContactTelephone Contact

Does company own other Does company own other

businesses?businesses?

Are you on calendar or fiscal period?Are you on calendar or fiscal period?

Do you do business in other states?Do you do business in other states?

Do you have computerized records?Do you have computerized records?

Confirmation LetterConfirmation Letter

Confirm date and timeConfirm date and time

Taxes to be auditedTaxes to be audited

Records neededRecords needed

Taxpayer rightsTaxpayer rights

Records Requested Records Requested

Chart of accountsChart of accounts General ledgerGeneral ledger General journalGeneral journal Sales journalSales journal Purchase journalPurchase journal Sales invoicesSales invoices Purchase invoices Purchase invoices

Depreciation Depreciation schedulesschedules

Copies of Federal Copies of Federal Income Tax, F & E, Income Tax, F & E, Sales and Business Sales and Business Tax returnsTax returns

Resale/exemption Resale/exemption certificatescertificates

Bank statements Bank statements and cancelled and cancelled checkschecks

Annual stockholder Annual stockholder reports and audited reports and audited financial statements financial statements

Electronic RecordsElectronic Records

What is available electronicallyWhat is available electronically Determine sales to auditDetermine sales to audit Determine expense accounts to auditDetermine expense accounts to audit Review detail or sample invoices from Review detail or sample invoices from

selected sales or expense accountsselected sales or expense accounts Results are extrapolated to determine Results are extrapolated to determine

proposed assessment or refundproposed assessment or refund http://tn.gov/revenue/tntaxes/sales/http://tn.gov/revenue/tntaxes/sales/

statisticalsampling.pdfstatisticalsampling.pdf

TAXPAYER BILL OF RIGHTS

(1) Receive fair and courteous treatment from all TDR employees;

(2) Receive tax forms and information written in plain language;

(3) Receive prompt and accurate responses to all questions and requests for tax assistance;

TAXPAYER BILL OF RIGHTS

(4) Request public records;

(5) Be assured that the department will keep confidential the financial information you give it;

(6) Know the department’s policies with respect to use and retention of personally identifiable information;

TAXPAYER BILL OF RIGHTS

(7) Receive tax notices that provide an explanation of the amount being billed;

(8) Receive a clear set of rules and procedures to resolve tax problems that arise from the interpretation and administration of Tennessee’s tax laws;

TAXPAYER BILL OF RIGHTS

(9) Dispute any tax liability by filing a timely request for a hearing;

(10) Know that TDR employees are not paid or promoted as a result of money billed or collected from taxpayers;

(11) Suggest ideas about how the department can better serve you;

TAXPAYER BILL OF RIGHTS

(12) Prompt notification by the department of any refund to which you are entitled;

(13) Attend annual meetings held by the department in convenient locations to voice your suggestions;

(14) A ten-day notice before a levy on assets is enforced;

TAXPAYER BILL OF RIGHTS

(15) A thirty-day notice before seized assets are liquidated;

(16) A speedy, informal and inexpensive appeal of any tax dispute before an impartial hearing officer and to be represented by an attorney, CPA or other representative; and

(17) Any other rights the commissioner deems necessary and appropriate.

What taxes audited?What taxes audited?

Generally, all taxes that the Generally, all taxes that the

taxpayer files with the taxpayer files with the

Department of RevenueDepartment of Revenue

Tax Type ExamplesTax Type Examples

Sales & UseSales & Use Franchise & ExciseFranchise & Excise BusinessBusiness Wholesale Alcoholic Wholesale Alcoholic

BeverageBeverage Wholesale BeerWholesale Beer Bottlers Gross Bottlers Gross

ReceiptsReceipts Coal and Mineral Coal and Mineral

SeveranceSeverance Income & InheritanceIncome & Inheritance

Bail BondBail Bond Liquor by the Drink Liquor by the Drink Mixing BarMixing Bar RecordationRecordation Cigarette & TobaccoCigarette & Tobacco Vending MachinesVending Machines Coin AmusementCoin Amusement Utilities Gross Utilities Gross

ReceiptsReceipts Motor FuelMotor Fuel

First Day of AuditFirst Day of Audit

Discuss businessDiscuss business Discuss records Discuss records Discuss how records trace to journals Discuss how records trace to journals

and returnsand returns Power of attorney for non-employeesPower of attorney for non-employees How long will it take?How long will it take?

ConfidentialityConfidentiality

Tax returns and taxpayer Tax returns and taxpayer information is strictly confidential information is strictly confidential by statute. by statute. TCA 67-1-1701 TCA 67-1-1701

Power of Attorney required for Power of Attorney required for each CPA or attorney each CPA or attorney

Secure EmailSecure Email

Written request from taxpayer or Written request from taxpayer or representative to communicate representative to communicate via emailvia email

Internet portal – secure emailInternet portal – secure email

Tour of FacilitiesTour of Facilities

Helps auditor understand the Helps auditor understand the many aspects and many aspects and terminology of the businessterminology of the business

Audit Procedure Agreement Audit Procedure Agreement

Agreement of audit procedure to be Agreement of audit procedure to be using if 100% of records are not using if 100% of records are not audited.audited.

Statistical SampleStatistical Sample Test PeriodTest Period Purchase MarkupPurchase Markup OtherOther

Common MistakesCommon Mistakes

Not taking exemptionsNot taking exemptions ContractorsContractors Not reporting all assetsNot reporting all assets Not properly reporting salesNot properly reporting sales Wrong business tax classWrong business tax class Not including all items in taxable amountNot including all items in taxable amount Not remitting tax collectedNot remitting tax collected Internet purchasesInternet purchases

Finalizing the AuditFinalizing the Audit

Delivery and explanation of work Delivery and explanation of work paperspapers

Explanation of penaltyExplanation of penalty Explanation of optionsExplanation of options Explanation of payment or refund Explanation of payment or refund

processprocess Tax Enforcement (423) 634-6288Tax Enforcement (423) 634-6288 Additional questionsAdditional questions

Taxpayer AppealsTaxpayer Appeals

A conference with the Audit A conference with the Audit Supervisor and/or Tax ManagerSupervisor and/or Tax Manager

An informal conference with a An informal conference with a TDR administrative hearing TDR administrative hearing officerofficer

Filing suitFiling suit

Be PreparedBe Prepared

Keep detailed recordsKeep detailed records Keep records organizedKeep records organized Get completed exemption Get completed exemption

certificates at point of salecertificates at point of sale Ask questionsAsk questions

InformationInformation

Web site is: Web site is: http://tn.gov/revenue/

Toll free telephone: 800-342-1003Toll free telephone: 800-342-1003

Local number : 423-634-6266Local number : 423-634-6266

Tax help email: Tax help email: TN.Revenue@tn.gov