Presenting a live 110 ‐ minute teleconference with interactive Q&A Sales and Use Tax Audit Strategies Sales and Use Tax Audit Strategies Anticipating Auditor Requirements for Documentation, Samples, Nexus and More THURSDAY, OCTOBER 20, 2011 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: James Tauber Managing Director WTAS Chicago James Tauber, Managing Director, WTAS , Chicago William Ault, Director, Crowe Horwath , New York Tom Johnson, Director, Ryan , Fort Lauderdale, Fla. For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at1-800-926-7926 ext. 10 .
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Sales and Use Tax Audit Strategies S l d U T A dit St t i Seminar Oct. 20, 2011 James Tauber, WTAS LLC William Ault, Crowe Horwath jim.j.tauber@ wtas.com william.ault@ crowehorwath.com Tom Johnson, Ryan tom.johnson@ ryan.com
Today’s Program Preparation For the Audit Slide 7 – Slide 16 [James Tauber] P Procedural Audit Aspects/Midstream Management d l A dit A t /Mid t M t Slide 17 – Slide 21 Slid 17 Slid 21 [William Ault ] Slide 22 – Slide 26 Current Auditor Priorities [Tom Johnson] Slide 27 – Slide 29 Alternatives To The Traditional Audit Process [William Ault ] [William Ault ] After The Audit Slide 30 – Slide 33 [Tom Johnson]
James Tauber, WTAS LLC PREPARATION FOR THE PREPARATION FOR THE AUDIT
Obj Objectives For This Section i F Thi S i Assignment of auditors • Auditor’s pre-audit research A di ’ di h • Your pre-audit preparation/research • Initial contact with auditor • Preparation for the opening conference • 8
State Procedures For Assigning Auditors Capacity • Geographic proximity to the taxpayer/records G hi i i h / d • Industry experience • Overall experience relative to the complexity/size of the • company 9
Scope Of Auditor’s Pre ‐ Audit Research General information General information • ― Google ― Company Web site ― Public financials ― Advertising (Yellow Pages, billboards, representatives, etc.) ― Press releases addressing recent activity (e.g., dispositions, acquisitions) dispositions, acquisitions) ― Visit retail locations ― Store ― Retail Web site 10
Scope Of Auditor’s Pre ‐ Audit Research (Cont.) Other tax filings • ― Tax returns ― N ti Notices ― Statement of accounts ― Nexus questionnaires Nexus questionnaires Prior audit workpapers Prior audit workpapers • 11
Your Pre ‐ Audit Preparation/Research Audit starts before the auditor calls Audit starts before the auditor calls • ― Know where the skeletons are ― Credit/refund opportunities ― Consider impact of sampling methodologies and/or sample periods ― Know what issues have occured and how they could affect the audit ― In what condition is your exempt sales documentation? In what condition is your exempt sales documentation? ― How long it will take to get the required information? ― Impact of recent changes in law for potential exposures/opportunities (e.g., amnesty) 12
Your Pre ‐ Audit Preparation/Research (Cont.) Develop a proposed audit plan/work program • Communication to the business C i ti t th b i • ― Let information resources know that you will be contacting them g ― Let the facility know there will be an auditor in the house ― Remind employees not to talk to or around the auditors 13
I i i l C Initial Contact With The Auditors Wi h Th A di Confirmation of companies and periods to be audited • Confirmation of information requests and the request process Confirmation of information requests and the request process • • Confirmation of timing of field audit and anticipated return visits • Inquire about their level of audit and industry experience • Discuss the auditor’s plan and address any gaps compared with your Discuss the auditor s plan and address any gaps compared with your • • plan Set the tone • 14
Preparation For Opening Conference f Develop an outline of what to cover • ― Timing ― Records/information requests Records/information requests ― Rules of the road ― Communication plan ― Process for resolution of issues Determine availability of requested documents • B f Be familiar with tax requirements/processes ili i h i / • A few words about sampling agreements … • Determine your rapport with the auditor Determine your rapport with the auditor • 15
I S In Summary Be prepared Be prepared ... • • ― Know your issues ― Have your resources lined up Have your resources lined up ― Review your documentation Develop an audit plan … • The more you prepare in advance … • ― The smoother the audit will go ― The more likely you will achieve good results 16
William Ault, Crowe Horwath PROCEDURAL AUDIT PROCEDURAL AUDIT ASPECTS/MIDSTREAM MANAGEMENT
Reviewing Questioned Invoices During The Field Audit Managing an experienced tax auditor’s negotiation strategy Managing an experienced tax auditor s negotiation strategy • ― Leave an auditor with the files or check in regularly? ― The risk of surprise and a weaker defensive position ― His/her time production expectations and risk of an assertion of no His/her time production expectations, and risk of an assertion of no cooperation ― File copies vs. pulling the invoice and contract again ― Mitigate the risk of the roving tax auditor Mitigate the risk of the roving tax auditor ― When to ask for draft workpapers Do I always answer their questions on the spot? • ― Three truthful answers, one resulting in tax and the others in non-taxability ― Checklist for all questioned invoices: Contract, PO, complete, geography, use tax, audited ― Bundled transactions and accounting entries dl d d 18
Reviewing Exemption Certificate Records Proposed exception items resulting from the test of exempt sales • ― Review shift of burden of proof ― Can we exclude based on nature of product/service? Can we exclude based on nature of product/service? ― Can we exclude based on destination? ― Resale or exemption certificate is missing. ― Obvious reseller or obvious exempt user ― Not-so-obvious reseller or exempt user ― Mi Missing certificate, and the reseller or exempt user is no i ifi d h ll i longer in business ― Contractors and capital improvement certificates ― What to do with a good faith challenge? 19
Audit Sample And Projection Changes Sample becomes voluminous and too time-consuming? S l b l i d t ti i ? • ― Expenses, sales, fixed assets ― Reduce block sample period Reduce block sample period ― Review vendor reports before invoices are pulled - obvious vendor elimination ― Multiple purchases from same vendor ― Projecting error rates over a representative population How often is a block sample truly significantly distortive? • Credits and the sample error rate • 20
R l Rules For Engaging The Auditor F E i Th A di Dealing with mid-audit problems: When and how do you go over their head? • ― Inexperienced or incompetent tax auditor ― If passive: Do you have the resources to effectively conduct the audit for them? ― If aggressive: Need for paper trial of unreasonable behavior ― Fundamental technical disagreement - Our sales are NOT taxable! g ― No agreement on documents to be produced ― Auditor leaves department Th The point person i t • Set a pattern early on to mirror their negotiating leverage model • Agree to disagree on reasonably open items • Setting the stage for a penalty waiver • 21
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