When an audit is generated, an audit questionnaire and an audit letter are mailed to the taxpayer. Taxpayer usually has 30 days to return the completed questionnaire. If it is not returned within 30 days, the taxpayer will be called and a 2nd questionnaire and will usually be sent by certified mail. If there is no response, the Auditor may come in person to the taxpayer’s place of business to examine the business records. A subpoena can also be issued if records are not made available.

In preparation for an audit, the Auditor can obtain records from vendors, landlords, the IRS, and utility companies. Amounts  of purchases obtained from vendors are then marked up by a reasonable percentage by the Auditor. Records that may be requested from the taxpayer may include: 

• chart of accounts 
• general ledger 
• general journals
• Sales journal 
• depreciation schedules 
• computer records, etc

The Auditor’s goals at the Entrance Conference is to determine the taxpayer’s knowledge of the law by discussing the taxpayer’s interpretation of both the law and the rules, to gain more information regarding operations, to determine the taxpayer’s method of compiling and reporting taxable amounts, and discuss audit procedures.

Once the audit is completed, the Auditor should conduct an Exit Conference to explain the audit procedures and findings, including a description of examined records, audit procedures used, in order to ensure the taxpayer’s understanding of the audit adjustments, explain the taxpayer’s rights and remedies, educate the taxpayer as to proper procedures to follow in the future, and collect the deficiency.

An assessment may include a fraud penalty (as high as 50%) if the auditor feels it was taxpayer’s intent to misrepresent their tax liability. Interest and penalties will be assessed on the total deficiency. The State also has the right to file liens on the business. In some states, liens can also be filed on personal property of the business owner.

The Statute of Limitations can depend on the State and usually runs from 3 to 4 years. This statute can usually be extended by agreement between taxpayer and the state.

If issues cannot be resolved at the Exit Conference, in most states a Reconciliation Conference can be scheduled with an Independent Audit Reviewer (IAR). Again, in most states, a redetermination and refund request can also be filed after receiving the Notice of Tax Due. Administrative Judges and Tax Court proceedings may also be an option.

* A request for redetermination on the entity identified above has been received. In an attempt to resolve as many issues as possible prior to the hearing, the Dallas East Audit Office will review any additional documentation you wish to present prior to the assignment of a hearings attorney. Please submit any additional documentation to support your statement of grounds within sixty (60) days from the date of this letter. An auditor from the Dallas East Audit Office will contact you to make arrangements to review this documentation on the 61st day. If you do not have all the documentation assembled by this date, it may be presented during the hearings process.