Audit Defense

As state and local business taxes rise to offset the increased cost of providing government services to increasing populations, states and local jurisdictions are increasing their efforts to collect business taxes. A state tax agency may audit a company’s records at any time to verify claims made on tax returns or to investigate whether all required taxes have been paid. The best time to implement an audit defense policy is before an audit occurs instead of after a notice of audit has been received because adequate advance planning can avoid costly errors.

In addition to reviewing all federal, state and local tax documents, an auditor may examine general ledger books, a general journal, a purchase journal, a cash disbursement journal, sales invoices, canceled checks and deposit slips, cash receipts, charts of accounts, bank statements, purchases of fixed assets and depreciation schedules, expenses, the minutes of corporate meetings and board of directors meetings. An auditor’s job is to check for compliance with all applicable regulations and to find any information that indicates required taxes were not paid. When Smart Tax USA conducts an audit defense, our goal is to examine all invoices that include paid taxes and find ways to offset the tax liabilities.

Concurrent with the economic growth of the Internet, an increased number of companies are expanding their business into interstate commerce so the need for multi-state tax knowledge is increasing. Most corporations maintain their accounting records in some type of computer format. Providing accounting records to an auditor in a well known computer format reduces the risk of random sampling by the auditor, saves valuable employee time or consulting time during an audit and increases the accuracy of the audit. Smart Tax USA has been especially successful at converting significant tax deficits into refunds during state tax audits of large manufacturing companies.

Another strategy in audit defense is known as a reverse sales and use tax audit. This is the opposite of a sales and use tax audit in which an auditor reviews a company’s business to determine if sales taxes and/or use taxes were correctly collected and paid. In a reverse sales and use tax audit, an independent tax expert identifies where overpayment of taxes has occurred and finds ways to recover the overpayments. Because each state has different regulations and requirements, it is necessary to know each state’s procedures for recovering tax overpayments as well as each state’s statute of limitations for filing tax refund claims. Some states require refunds to be made by the suppliers who received the tax overpayments but many states allow companies to request refunds directly from tax agencies.

SMART TAX USA