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

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

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

Audit Notification First, by telephone First, by telephone Then, confirmation by mail Then, confirmation by mail

Telephone 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 Contact Does company own other businesses? Does company own other 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 Letter Confirm date and time Confirm date and time Taxes to be audited Taxes to be audited Records needed Records needed Taxpayer rights Taxpayer rights

Records Requested  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

Electronic Records What is available electronically What is available electronically Determine sales to audit Determine sales to audit Determine expense accounts to audit Determine expense accounts to audit Review detail or sample invoices from selected sales or expense accounts Review detail or sample invoices from selected sales or expense accounts Results are extrapolated to determine proposed assessment or refund Results are extrapolated to determine proposed assessment or refund mpling.pdf mpling.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? Generally, all taxes that the taxpayer files with the Department of Revenue Generally, all taxes that the taxpayer files with the Department of Revenue

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

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

Confidentiality Tax returns and taxpayer information is strictly confidential by statute. TCA Tax returns and taxpayer information is strictly confidential by statute. TCA Power of Attorney required for each CPA or attorney Power of Attorney required for each CPA or attorney

Secure Written request from taxpayer or representative to communicate via Written request from taxpayer or representative to communicate via Internet portal – secure Internet portal – secure

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

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

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

Finalizing the Audit Delivery and explanation of work papers Delivery and explanation of work papers Explanation of penalty Explanation of penalty Explanation of options Explanation of options Explanation of payment or refund process Explanation of payment or refund process Tax Enforcement (423) Tax Enforcement (423) Additional questions Additional questions

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

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

Information Web site is: Web site is: Toll free telephone: Toll free telephone: Local number : Local number : Tax help Tax help