Obtaining the Necessary Information and Representation to Aid Your Upcoming Audit
So, your business has received notice of an impending audit; though the experience can be daunting for any taxpayer regardless of the circumstance, one must understand the necessary steps needed to ensure that you survive a Florida sales tax audit unscathed.
First and foremost, it is important to know the purpose behind a sales tax audit. A business is mostly flagged for audit when their exempt sales ratio is out of range with other companies within its industry, and in other cases they are simply chosen at random. The Florida Department of Revenue (DOR) will be looking for any violations of Florida tax law during the year(s) in question– whether your business failed to remit any of all sales tax collected from customers to the state. This act alone carries a series of consequences and is considered a violation of Florida tax law–from hefty fines to jail time, in some instances.
The DOR will notify the taxpayer of an audit by issuing form DR-840, a Notice of Intent to Audit Books and Records. This notice will state that the audit will begin 120 days from the notice issue date (an audit cannot begin for 60 days after notice issue date, but can be waived to begin sooner than 120 days). Once this letter is received, the taxpayer should hire an experienced tax professional to assist with audit preparation during their 60 day ‘homework’ period and during the actual audit, regardless of how well the business maintains its records or if they believe they have nothing to hide. A Florida sales tax audit can easily go from a simple sweep of documentation to an extensive (and sometimes even unnecessary) prodding of records by the DOR. By hiring a tax professional, the documents and information requested can be presented in a clear enough manner that will help minimize further assessment.
Two Types of Sales Tax Audits
The DOR will request one of two sales tax audits – a “Desk Audit”, where the taxpayer must visit one of their offices, or a “Field Audit” at the place of business. The auditor will be comparing the business’ annual federal tax return to sales and use tax returns to determine an excess in sales and use tax returns. Any excess reported sales will be documented by the auditor, which should then be reconciled by the taxpayer to show that these sales were either exempt or not sales at all. The auditor will look over items such as fixed assets and commercial rent, both of which are subject to sales tax. Sample months will also be requested to test exempt sales of the business. In some cases where the business and tax professional is unable to participate in gathering these necessary documents, the DOR will review the books and records for the company. It is suggested and imperative that all relevant documentation supporting these items is prepared and presented in order to personally reconcile any discrepancies found by the auditor.
After all records are reviewed, an audit report will be issued (known as DR-1215, or Notice of Intent to Make Audit Changes). At this time, the taxpayer has 30 days to request further review of the results recorded by the DOR.
Florida Sales Tax Audit Representation
While the process can seem daunting and inconvenient, proper preparation and a knowledgeable tax professional on hand can help you survive a tax audit in the best way possible. For more information on Florida tax audits, call Acosta Tax & Advisory at 954-239-8365 to speak with a Florida business accountant or tax attorney to assist with your audit process.
* This is not tax or legal advice – please consult with a CPA to discuss your specific situation.