Sampling Strategies in Sales Tax Audits Sampling Strategies in Sales - PowerPoint PPT Presentation

Presenting a live 110 ‐ minute teleconference with interactive Q&A Sampling Strategies in Sales Tax Audits Sampling Strategies in Sales Tax Audits Selecting a Sampling Methodology and Negotiating With Auditors THURSDAY, NOVEMBER 17, 2011 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Roger Pfaffenberger Director of Audit Sampling Practice Ryan Dallas Roger Pfaffenberger, Director of Audit Sampling Practice, Ryan , Dallas David Leifer, Director of Sales and Property Taxes, InterContinental Hotels Group , Atlanta Kenneth Helms, Tax Consultant, Atlanta 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 .

Conference Materials If you have not printed the conference materials for this program, please complete the following steps: Click on the + sign next to “Conference Materials” in the middle of the left- • hand column on your screen hand column on your screen. Click on the tab labeled “Handouts” that appears, and there you will see a • PDF of the slides for today's program. Double click on the PDF and a separate page will open. Double click on the PDF and a separate page will open. • Print the slides by clicking on the printer icon. •

Continuing Education Credits FOR LIVE EVENT ONLY Attendees must listen to the audio over the telephone . Attendees can still view the presentation slides online but there is no online audio for this program. Please refer to the instructions emailed to the registrant for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 . at 1 800 926 7926 ext. 10 .

Tips for Optimal Quality S S ound Qualit y d Q lit For this program, you must listen via the telephone by dialing 1-866-873-1442 and entering your PIN when prompted. There will be no sound over the web co connection. ect o . If you dialed in and have any difficulties during the call, press *0 for assistance. You may also send us a chat or e-mail sound@ straffordpub.com immediately so we can address the problem. Viewing Qualit y To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again press the F11 key again.

Sampling Strategies in Sales Tax Audits S li St t i i S l T A dit Seminar Nov. 17, 2011 Roger Pfaffenberger, Ryan Kenneth Helms, Tax Consultant roger.pfaffenberger@ ryanco.com ueliparent@ comcast.net David Leifer, InterContinental Hotels Group dave.leifer@ ihg.com

Today’s Program Sampling Fundamentals Slide 7 – Slide 11 [Kennet h Helms] Example Of Audit Gone Bad Over Sampling Slide 12 – Slide 24 [Roger Pfaffenberger and David Leifer] Do's And Don'ts Of Sampling Slide 25 – Slide 34 [Roger Pfaffenberger and Kennet h Helms] Assessing Various Sampling Methodologies Assessing Various Sampling Methodologies Slide 35 – Slide 57 Slide 35 – Slide 57 [Roger Pfaffenberger] Planning And Negotiating A Sample Slide 58 – Slide 65 [David Leifer]

Kenneth Helms, Tax Consultant SAMPLING FUNDAMENTALS SAMPLING FUNDAMENTALS

I Introduction d i I. Audit sampling Webinar objectives A. Provide information to assist you with sample audits B. Answer questions you may have about audit sampling B A ti h b t dit li II. Challenge of confronting sample audits in light of: A A. Limited resources Limited resources B. Juggling multiple audits C. Systems changes during audit period C. Systems changes during audit period D. Aggressive auditors who know where you may be vulnerable E. Auditors with limited knowledge about audit sampling 8

Wh B Why Bother? h ? The good ● Improved systems ● Improved processes I d The bad ● Lack of bandwidth ● Lack of bandwidth ● Speed for speed’s sake The ugly The ugly ● “I did pretty well in my Stats class. How hard can this be? ● Forced from above 9

“Ten Commandments” Of Audit Sampling 1. Thou shall know thy data. 2. Thou shall know the rules, regulations, laws and court rulings concerning sampling for the tax jurisdiction. i li f th t j i di ti 3. Thou shall only include G/L codes that have indirect tax attributes in the audit population. 4. Thou shall never provide invoice data at kick-off meeting. 5. Thou shall always discuss procedures concerning “currently unavailable for review” invoices before beginning the audit unavailable for review invoices before beginning the audit. 10

“Ten Commandments” Of Audit Sampling 6. Thou shall always discuss how overpayments are calculated. 7. Thou shall never immediately sign a jurisdiction’s sampling agreement (even for Ohio). t ( f Ohi ) 8. Thou shall not give the auditor data without first reviewing. 9. 9. Thou shall always review the auditor’s calculations. Thou shall always review the auditor s calculations. 10. Thou shall establish an audit schedule with defined milestones and work review (keep the “wheels on”). 11

R Roger Pfaffenberger, Ryan Pf ff b R David Leifer, InterContinental Hotels Group EXAMPLE OF AUDIT GONE EXAMPLE OF AUDIT GONE BAD OVER SAMPLING

I Introduction d i I. Does the phase, “wheels off sample audit” mean anything to you? A. How did the wheels come off? A How did the wheels come off? B. Why did the wheels come off? C. What can be done now to salvage the audit? g D. What can be done to prevent this from happening in the future? II. A case involving a sample audit gone badly is used to address these questions these questions. 13

C Case Study S d I. Case description A. Texas audit of sales and purchases B. Three-year audit period B Th dit i d C. Firm operated several “outlets” during audit period. D. Several outlets were sold during audit period D Several outlets were sold during audit period E. Most outlets were responsible for maintaining their accounting records (invoices, exemption certificates, resale certificates) Do we see where this is going? One or two wheels off, and  counting! counting! 14

C Case Study (Cont.) S d (C ) II. Case chronology A. May 2005: Firm receives audit notification (audit period Jan 1 2002 through Dec 31 2004) Jan. 1, 2002 through Dec. 31, 2004) B. June 2005 – August 2005: Initial discussions with auditor focusing on use of block sampling for audits of purchases and sales C. August 2005 – January 2007: Little or no communication with auditor during this period with auditor during this period D. February 2007: New auditor assigned to audit Another wheel off? Why?  15

C Case Study (Cont.) S d (C ) II. Case chronology (Cont.) A. March 2007: Auditor asks for and receives data files required for audit B. April 2007: Tax director receives report from auditor (“Here is what I have so far”) indicating seven exams were used in the audit (three for sales and four for purchases) and adding the following tidbits of information: i. Five exams have been completed. ii. Surprise #1: A stratified random sample, not a block ii S i #1 A t tifi d d l t bl k sample, was used for the purchases audit. iii. Surprise #2: Initial assessment for the purchases audit p p is $2 million-plus, due primarily to missing records. 16

C Case Study (Cont.) S d (C ) II. Case chronology (Cont.) A. May 2007: Auditor sends results for remaining exams to tax director Essential tidbits from the auditor’s second director. Essential tidbits from the auditor s second missive: i. Sales audit is based on a block sample of 12 “outlet/months,” placed in two groups of six “outlet/ months” each. ii. Auditor declares sales audit will be “estimated,” since ii. Auditor declares sales audit will be estimated, since a minimum of 30 “outlet/months” are needed. iii. Auditor declares the purchases audit completed. Is something missing at this point in time?  17

C Case Study (Cont.) S d (C ) II. Case chronology (Cont.) A. May 3, 2007: Auditor issues Texas “notification of sampling procedures” for the audit of purchases procedures for the audit of purchases. B. Important Texas Statute 111.0042(c): “Before using a sampling technique to establish a tax liability, the comptroller or his designee must notify the taxpayer in writing of the sampling procedure to be used.” C. The notification of sampling procedures was sent to tax C. The notification of sampling procedures was sent to tax director aft er the projected assessment was determined. Do we see an opportunity for challenging the audit results?  18

C Case Study (Cont.) S d (C ) II. Case chronology (Cont.) A. May 2007 – August 2007: Tax director works diligently to find missing invoices to reduce purchase audit assessment find missing invoices, to reduce purchase audit assessment. B. Texas S ampling Manual : “Missing Invoices - Missing invoices are taxed at 100%. Taxpayers are required to maintain books and records for the periods in statute.” Many states treat transactions with missing documentation as  100% taxable. What are ways to address this policy in order to 100% taxable. What are ways to address this policy in order to reduce the assessment on missing items? 19