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Small Business

Being Audited: What To Expect

There is a lot of psychology that revolves around the word “audit”. It can cause anxiety, chest pain, lack of sleep, etc. You may see yourself tied to a conveyor belt, being pulled helplessly towards a razor-sharp spinning saw blade. It is my belief that these emotions stem from horror stories that you might have heard from other taxpayers. Remember, the only time a horror scenario plays out is when a taxpayer goes through an audit without effective and reputable representation.

First step: Education will help you sleep

Going through an audit of any type has been described as the feeling of being sued. Lawsuits can be a complicated legal process full of unpleasant surprises and frustration. Every conversation consists of the other party’s attorney trying to get information out of you or your employees. The prosecution is constantly telling you how much bigger the settlement will be if you don’t settle now. This does happen in an audit, but not all of them. Educate yourself. Gather as much literature as you can on the subject and read all that the web has to offer on the exact audit you are facing.

Given the complexities of the Texas sales and use tax code, coupled with the sometimes hostile approach of a state auditor, it would also help to learn some of the words and phrases associated with an audit so that your answers if questioned, do not create any phantom red flags. Too many business owners for example, go into an audit and cannot stop talking about their business. They are either innocently nervous or believe that the more they talk, the more professional and “on top of things” they will sound. If you are a “talker” or a feisty individual, I would suggest that you do not attend your own audit. If you have an accountant or a tax consultant, (and you should at this point) they can do the talking for you.

Second step: Contact your accountant

You need references from your accountant that can testify to his/her success with the type of audit you are facing. Don’t get references about your accountant’s experience with an IRS audit if you are facing a sales tax audit. For example, the IRS has an Offer in Compromise settlement agreement; the Texas State Comptroller has no such thing. My point being that if the state examiner botches your assessment, you are going to want to fight it tooth and nail. But to even start fighting assumes you or your accountant (1) know the chronology ahead of you, (2) that you understand statute waivers, AP110, private letter rulings, House Bill 3314, etc., (3) and that you have a concept of what grounds to fight it on. Too many times, the taxpayer knows nothing except for the huge stack of paper written in legalese that has a ridiculous dollar amount attached to it. If your accountant does not feel comfortable handling this type of audit, it’s time to consider hiring a consultant.

Third step: How to hire a tax consultant

Do you need to hire representation for your audit? There is a laundry list of things you need to consider. I will make this very simple for you. You need to understand two rules (1) Burden of Proof and (2) Sovereign Immunity. This is what protects the state from litigation if one of their employees makes a mistake that costs you money.

Now, read the brochure of the tax consulting company that you are considering for representation services. Is that brochure littered with verbiage containing derogatory comments about the State Comptroller, phraseology that is mean-spirited in nature and directed at your state examiner? Are the accusations in that documentation absolutely true? Do you really believe that the State Comptroller and her employees are not aware that this literature is out there bashing them? If that is the company that you are considering hiring to represent you—Boy, talk about starting your audit off on the wrong foot! My analogy would be that this is the equivalent of slapping a cop in the face for pulling you over and then asking him to let you slide on the ticket.

One of my competitors has a beautiful brochure. Some taxpayers just sign right up with them because of its craftsmanship. Later, a lot of those same taxpayers hire us on the backend to correct that competitor’s mistakes. My point being, even a coral snake is beautiful to look at until it bites you!

If you are going to take advice from anyone about your pending audit; ask them the following questions:

  1. How many audits do you defend each year?
  2. What are the 3 toughest audits you have ever faced?
  3. What was the final outcome of those 3 audits?
  4. Can I call the references for those 3 audit-stories?
  5. What does the term “stopping short” mean?

Fourth step: Call Streamline today

We will provide you with a free consultation, not a sales pitch. I will personally take the call or have one of the local managers field your questions if I am not available. This consultation is worth more than $500. We will teach you about your specific options and explore multiple outcome scenarios before you make any decisions on how to improve your position. The bottom line is that it is never too late to get us involved in your audit. Streamline is engaged for audit defense services at the beginning, middle, and sometimes up to 6 months after an audit is paid for and done. It’s not over until we say it’s over.

Fifth step: Read the contract

It doesn’t matter who you hire to represent you if what you have been sold is not dictated in the verbiage of the contract. Please forget what the sales staff has told you. Read the contract. Is your consultant handling the audit or are they simply telling “you” how to handle it? Read it again.

My best advice is that you get what you have been sold in electronic format. I am not talking about the agreement. Ask the salesmen who sold you on choosing their company to please dictate an email in-depth about what you can expect in terms of service from this engagement. Compare that email to the agreement he/she is asking you to execute. Are there any additional costs not covered on the contract? Does it contain exact verbiage stating that “XYZ Company will defend your audit”? Does it cover re-determination, IAC meetings, termination clauses or when this engagement is technically over?

Final note: BBB rating

Streamline has averaged 205 new clients a year since 2004 and has a flawless BBB rating. We would love to help you with your audit. We are knowledgeable and professional advocates who excel in providing assistance to businesses who are under audit by the state or local taxing authorities. Our goal is to secure the best possible result and to aggressively defend phantom assessments when the situation presents itself.

While certain tax consulting companies will only entertain accepting potential clientele based on the size of their annual revenue; we here at Streamline have never turned anyone away. The little Mom/Pop-size businesses helped me build this company years ago. I will never abandon you and we have the references to prove it.

We stress the old adage, which has never been truer: An ounce of prevention is worth a pound of cure. For more information regarding Streamline’s Small Business Defense Team, please contact us at (972) 838-1900.

Shannon Goertz