Audit Deficiency:  Don't Make the Same Mistake Twice

Posted by Mary Thomas on Jun 27, 2017 9:15:00 AM

tax-compliance-auditjpg.jpgAs a rule of thumb, if you have an accounting system that works, barring any change to the services or products offered, do not change the invoicing system. It is not uncommon to have a ”good” audit result under one accounting regime and have a sizable tax deficiency due to a change in the accounting system.

If errors are documented as the result of an audit, change the identified areas of noncompliance. The taxing authority will probably be back to audit prospective compliance. It is standard practice to scrutinize areas of historic noncompliance. If the error is not corrected, it will be easy to identify. Upon the discovery of a previously discovered error, the taxpayer can expect the levy of the tax, interest, and penalty. It is less likely that penalty will be waived if a taxpayer fails to correct a previously identified error.

While a previous audit may be the catalyst for the correction of tax treatment, the taxpayer is cautioned that an audit is not assurance that all errors were identified. Taxpayers are responsible for compliance with the law even when an audit fails to identify all areas of noncompliance. While there is no guarantee that an audit uncovered all areas of noncompliance, it is imperative that compliance is achieved in areas that were identified.

WARNING:  If you challenge an audit finding, there can be a period from the end of the audit period to the time the issue is resolved in which the accounting procedures do not change.  When updating procedures to reflect the updated understanding of the law, go back to the end of the audit period to address any error(s) that occurred prior to the change in the accounting system.  It is common for taxpayers to forget to go back to the end of the audit period-- not the point that the necessity of the change was acknowledged-- when updating sales and use tax procedures.

Topics: Sales Tax

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