NC Audit Help!

[Super Mom]

I have a client that has been hounded with NCDOR tax audits for about 5 years in a row now. I only prepared one of those years. A few days ago, she got a call from a lady claiming to be from the NCDOR sales tax division and was informed BY PHONE that she was under a sales tax audit for 3 years worth of returns. I'm thinking she needs something in writing about being under audit.

Also, this lady was asking all kinds of questions out of the realm of sales tax, such as store hours, etc. She told my client she expects all receipts for purchases, etc.... and all bank statements business and personal. The 2014 receipts have already been examined and approved by a NCDOR officer in a revenue audit. Providing 2015 and 2016 is no problem as I boxed them and labeled them as the taxes were prepared. However, the 2017 income tax return is not even due to be filed yet, so how can she expect that? Also, I'm thinking that is probably out of her realm of authority to ask for all of that.

Any suggestions?

[Super Mom]

I just find it really hard to believe that they can ask for all of that for a sales tax audit, those things don't even affect that return!!

[kathyc2]

I've never heard of notification of audit by phone. I'd start by verifying that the call was actually from the DOR.

I think the things asked for are pertinent to a sales tax audit. Receipts for purchases would be looking for missing use tax. Bank statements would be looking if reported sales and related sales tax agree with deposits made. Request for personal bank statements are probably looking for if business receipts might have been deposited to personal account and not reported as sales tax. How often are sales tax returns filed? If monthly, I'd say months already filed are fair game, although I've never run across a sale tax audit looking at partial year.

[Super Mom]

My client called her auditor for state income for 2013 and 2014. He said as far a he was concerned they were over, but he verified that the lady on the phone was his supervisor and that she was a field auditor. This auditor explained to my client that she was under a comprehensive audit for 2015 and 2016. She told my client that she would receive a letter stating the agreed upon appointment date AFTER we make the appointment to give her whatever she asks for. No letter stating that she is under audit for 2015 and 2016.

My client is to call this lady back on Monday. I'm thinking of advising my client that she needs a letter stating that she is under a comprehensive audit for 2015 and 2016. She could nicely explain that she needs a letter explaining her rights and giving a listing of what we need to have ready for her. Anyone agree or disagree with that?

[FEDUKE404]

Getting a call from NCDOR

Earlier this year I had a (potential) client call me who was facing an audit from NCDOR, primarily related to his 2013 and 2014 and 2015 NC returns. This person had used Turbotax, and long-story-short had somehow managed to claim a >$100k loss for his Schedule C business (he also has a full-time job), primarily from ~1k/week of "business miles." Did I mention the Schedules C showed ZERO income?

Apparently his "records" were sparse, and the trend was continuing for the upcoming 2016 returns.

I politely deferred from accepting him as a client. (I also suggested he might want to procure legal counsel.)

BUT he did inform me he had first been contacted, via phone, by a NCDOR rep requesting, among other things, current business income / receipts /etc. to be brought to a scheduled office audit on an upcoming date.

I have no idea how this situation played out. Just FYI.

Oh yes: I find it rather intriguing he (at the time of our conversation) had NO "problems" with the IRS for the filed returns.

FE

[Super Mom]

I have no reason to think this client is anything but on the up and up. Bad business person? YES but better now since I have been keeping her books and doing her taxes. Sometimes a person needs things on paper explained to them, and I don't think anyone was doing that before me.

I'm just thinking the NCDOR is harassing her and maybe can't really audit 2015 and 2016, or they would have gotten that in writing. We have no problems with an audit of 2015 and 2016 as everything is matched, boxed and I have meticulous notes. I'm just thinking she should demand something in writing before she allows them to harass her on even more years not to mention the extra expense of paying me for my time that she really can't afford.

I'm contemplating checking with a lawyer before I advise her, not sure what to do. Thanks for all of the help!

[Super Mom]

FYI, I checked with a lawyer, and they said yes, I should definitely advise my client to get that in writing.

[JON]

Minnesota

used to start with a phone call and then send written notification of what they needed for the sales tax audit. I never could figure out why, but i had a client that was not cooperating with the phone calls and he kept giving them my telephone number and he finally just called me and we got through the audit.

Income tax audit has nothing to do with a sales tax audit. If there was an income tax audit I always let them know, but it does not change anything for their audit. They have very specific things they look for in a sales tax audit. They are always looking for sales and use tax amounts that were missed. Audits are very detailed oriented.

[Super Mom]

Update: When my client called the "auditor" to tell her that she needed something in writing, she got very angry and informed my client she would be at her store on the 26th of July. She accused my client of pulling numbers out of the sky and not having receipts. That is crazy! Right now, the NCDOR has receipts from 2014 in their offices and we have completely complied with their 2013-2014 audit. The auditor who conducted those says the audit is done and over as far as he is concerned, this lady calling my client is his supervisor. I have meticulous notes and receipts boxed matching line by line for the 2015 and 2016 returns. This "auditor" has called my client several times and is very rude and asks ALOT of questions.

I will be out of town on the 26th of July. I'm thinking of composing a letter for the client that says we cannot make that meeting and that all correspondence from this point on needs to be in writing. I don't want to rule out simple phone calls or meetings in person, but this "auditor" is not conducting herself in a normal fashion. It seems that my client is being harassed. My client has 4 children, is disabled and forgets a lot. She does not need to be called by this "auditor" at all hours of the day.

Thoughts?

[TAXNJ]

Think at this point and based on your extensive replies and reply posters, you might consider having your client get the services of a local tax attorney at this point. Don't know if continuing posting on this site will solve the scenario other than more time lost vs. having a local tax attorney address the scenario.

[Super Mom]

This client cannot afford an attorney, I will not charge her for my help no where near what an attorney would!

[TAXNJ]

Then see if reviewing the "North Carolina Taxpayers' Bill of Rights" provides you with information that you can reference and defend your position to the auditor.

Good luck.

[Super Mom]

Thanks for your help!

[kathyc2]

I understand the frustration, but I personally wouldn't make a big stink over it. Unless the business is extremely simple, chances are something can be found if the auditor wants to dig far enough. My personal feeling is it's better to develop a professional rapport with auditor rather than piss them off.

[JohnH]

I understand the frustration, but I personally wouldn't make a big stink over it. Unless the business is extremely simple, chances are something can be found if the auditor wants to dig far enough. My personal feeling is it's better to develop a professional rapport with auditor rather than piss them off.

Good point. Even when they can't find any sales reporting discrepancies, they start poking around in Office Expense, Asset Purchases, and other locations to try and find candidates for Use Tax. Often that is more lucrative for them in terms of audit results, and they can chew up a lot of time on that part of the project.