Contacted for Audit: What to Expect

1. Contacted for Audit: What to Expect November 13, 2013 Presented by Tennessee Department of Revenue

2. What is an Audit? • Review or examination of a taxpayers books, records, accounts and/or financial information • Ensure information is reported correctly and according to tax laws • Verify the tax reported is accurate

3. Audit Selection • Computer screening • Document matching • Related examination • Knowledge based • SEATA referrals

4. Audit Notification • First, by telephone • Then, confirmation by mail

5. Telephone Contact • Who prepares the returns? How long? • Who will auditor work with? • What is your service or business type? • How many locations?

6. Telephone Contact • Does company own other businesses? • Are you on calendar or fiscal period? • Do you do business in other states? • Do you have computerized records?

7. Confirmation Letter • Confirm date and time • Taxes to be audited • Records needed • Taxpayer rights

8. Chart of accounts General ledger General journal Sales journal Purchase journal Sales invoices Purchase invoices Depreciation schedules Copies of Federal Income Tax, F & E, Sales and Business Tax returns Resale/exemption certificates Bank statements and cancelled checks Annual stockholder reports and audited financial statements Records Requested

9. Electronic Records • What is available electronically • Determine sales to audit • Determine expense accounts to audit • Review detail or sample invoices from selected sales or expense accounts • Results are extrapolated to determine proposed assessment or refund • http://tn.gov/revenue/tntaxes/sales/statisticalsampling.pdf

10. 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;

11. 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;

12. 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;

13. 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;

14. 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;

15. 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.

16. What taxes audited? Generally, all taxes that the taxpayer files with the Department of Revenue

17. Sales & Use Franchise & Excise Business Wholesale Alcoholic Beverage Wholesale Beer Bottlers Gross Receipts Coal and Mineral Severance Income & Inheritance Bail Bond Liquor by the Drink Mixing Bar Recordation Cigarette & Tobacco Vending Machines Coin Amusement Utilities Gross Receipts Motor Fuel Tax Type Examples

18. First Day of Audit • Discuss business • Discuss records • Discuss how records trace to journals and returns • Power of attorney for non-employees • How long will it take?

19. Confidentiality • Tax returns and taxpayer information is strictly confidential by statute. TCA 67-1-1701 • Power of Attorney required for each CPA or attorney

20. Secure Email • Written request from taxpayer or representative to communicate via email • Internet portal – secure email

21. Tour of Facilities • Helps auditor understand the many aspects and terminology of the business

22. Audit Procedure Agreement • Agreement of audit procedure to be using if 100% of records are not audited. • Statistical Sample • Test Period • Purchase Markup • Other

23. Common Mistakes • Not taking exemptions • Contractors • Not reporting all assets • Not properly reporting sales • Wrong business tax class • Not including all items in taxable amount • Not remitting tax collected • Internet purchases

24. Finalizing the Audit • Delivery and explanation of work papers • Explanation of penalty • Explanation of options • Explanation of payment or refund process • Tax Enforcement (423) 634-6288 • Additional questions

25. Taxpayer Appeals • A conference with the Audit Supervisor and/or Tax Manager • An informal conference with a TDR administrative hearing officer • Filing suit

26. Be Prepared • Keep detailed records • Keep records organized • Get completed exemption certificates at point of sale • Ask questions

27. Information • Web site is: http://tn.gov/revenue/ • Toll free telephone: 800-342-1003 • Local number : 423-634-6266 • Tax help email: TN.Revenue@tn.gov