Here is the final installment of our four-post series about California Sales Tax and Use Audits. In Part 1, we cover how audits are triggered and companies selected for audit. Part 2 is about how the audit is conducted and the types of documents you may be required to provide. Part 3 gave you some tips for working with an auditor and the type of investigation an auditor may perform.
In Part 4 we take up what happens after an audit is complete, and how an experienced tax attorney can help you through the process of an audit by the Board of Equalization.
The Exit Conference
When the auditor has completed the field work, an Exit Conference is called to present the findings and copies of the auditor’s working papers. A BOE supervisor may be in attendance as well.
One the findings are presented, you have the chance to disagree with the findings and explain why. You will be given time to gather documentation and present any information you think supports your case.
After you have made your argument, the auditor may do one of three things:
- Adjust the findings
- Request more evidence
- Arrange another meeting to discuss your case
Meeting with the BOE Supervisor
If the supervisor was not present at your exit conference, you may now request a meeting with that person if you and the auditor are unable to reach an agreement about the audit findings.
You will again have the opportunity to present your information and reasoning while the auditor prepares a Report of Field Audit or a Report of Investigation. The BOE supervisor will analyze both sets of data.
If you are still unable to reach an agreement on the outcome of the audit, you may meet with a BOE representative within ten days of your meeting with the BOE supervisor. Otherwise, you may consider meeting with the District Principal Auditor to discuss your disagreement with the audit.
The DPA is actually relatively helpful in resolving issues or clarifying the BOE’s position on them.
Afterward, you will have a follow-up meeting the Board of Equalization representative and make your presentation once again. At this point in the process, if you and the BOE continue to disagree about the audit and the case remains unresolved, the BOE will issue a Notice of Determination, and you may enter the Appeals process.
Appeals Process and Settlement
Once the Notice of Determination has been issued, you have 30 days to file a Petition for Redetermination using Form BOE-416. You may, instead, file your own petition but it must contain the following elements:
- It must be in writing.
- Identification of the amount or amounts you are contesting.
- Statement of the specific grounds or reasons you believe the tax is not owed.
- Your signature as the taxpayer or the signature of your authorized representative.
If you prefer, you can also request an Oral Hearing in front of the Board of Equalization. You may also request an Appeals Conference where you can present your case.
At this point, you have the option to make a Settlement Proposal instead using Form BOE-393.
If you are not proposing a settlement and the case remains unresolved, there is a final step you can take.
You must go to court and attempt to prove your case. However, at this point, you are required to pay the proposed tax in full, although you will not be asked to pay any interest now.
The request for a judicial proceeding is a request for the court to review your information and the results of the audit. If the court finds in your favor, you will be refunded the tax you paid. If not, you will now be asked to pay the interest and any penalties as well.
How a Tax Attorney Can Help You
California has over 800 laws and regulations included in the Sales and Use Tax legislation, all with supporting documentation. There are also two guide books with 24 chapters between them and a list of around 110 sales and use tax-related statutes.
Just the thought of receiving a notice for a sales and tax audit can make you feel like David getting ready to meet Goliath.
Your best bet is to hire a qualified tax attorney as soon as possible, preferably when you receive the audit engagement letter. If you decide to wait, you can bring an attorney in at any phase of the process from audit through the judicial proceedings.
Tax attorneys can legally represent you, the taxpayer, and manage almost all the activities related to an audit.
Tax attorneys can manage every aspect of the audit including how it is performed. They can then analyze the statistical methods the BOE auditor uses to make sure you are getting a fair shake.
They can prepare and perform any presentation required in from of the District Principal Auditor and file any necessary documents to request an appeal. Your rights are protected at all times.
You receive legal guidance throughout the appeal, checking that every path of appeal has been considered, so your liability is reduced as much as possible.
If you need representation in from of the Board of Equalization’s Appeals Review Conference and Oral Hearing, your tax attorney can represent you. Your attorney takes care of filing all requests for oral hearings, petitions for rehearing, and requests for relief from penalties.
If you need a settlement, Request for Reconsideration, or Claim for Refund drafted, your tax attorney can handle that as well.
The Benefits of Hiring a Tax Attorney
Hiring a tax specialist brings a host of advantages. Tax attorneys have broad and deep knowledge of the tax code and all the ins and outs. They know where the pitfalls are in both the audit and appeals segment. They know how the laws and policies are commonly interpreted so they can position your case to best advantage.
A tax attorney is your intermediary between you and the Board of Equalization. Your rights are advocated at every turn, and your interests are front and center.
This concludes our series on California Sales and Use Tax Audits. We hope it was informative for you. Please do not hesitate to contact Brotman Law with any questions.