It is so disheartening to have someone tell me they paid someone to “handle” a sales tax audit for them and they feel cheated because nothing happened. They have a bill and no one will speak with them about it. For everyone who is going through an audit, I have a few things that you should question when hiring an advocate. The next blog will address what YOU can do to secure your best audit result.
RED FLAG 1: The fee structure doesn’t make sense.
People don’t work for free. If your records are not in great shape or you anticipate that there may be issues with your audit, do you really expect that you are going to pay someone a flat fee for more hours than they budget for each job? Think about it!
If a service provider estimates that it will take 10 hours to complete an audit and charges a fee that reflects that amount of time, do you think that person is going to spend 40 hours on your matter for that 10 hour fee?
You don’t want to give anyone a blank check. You don’t want someone to charge for 50 hours of time for 10 hours of work. You must be vigilant. However, you must also anticipate human nature. Don’t expect full coverage in an audit context for a bargain basement price if you have not undergone audit before or you had material issues in a prior audit. If your audit is not addressed effectively, you are going to be left holding the bag.
RED FLAG 2: You don’t have a designated contact person who interfaces with the auditor.
I am a big proponent of customer service. When you have a professional represent you on any given matter, you should have someone you can call to inquire about the status of the work. You should be encouraged to ask questions. You must be comfortable speaking with the person who interfaces with the taxing authority on your behalf.
Getting through an audit is a collaborative process. If you never speak to the person who presents information to the auditor about technical aspects of the audit, you may have an issue. How do you know what is going on? For that matter, how does your advocate know how to present your matter to the auditor? I haven't had a client that I did not question about some aspect of their business.
RED FLAG 3: You don’t get straight answers when you call or the person is too busy to explain your situation to you.
We have all called people and felt like they were speaking Greek. You ask a question and you can’t get a straight answer. Or the person says a lot of words that mean absolutely nothing to you. My favorite deflection tactic is when people try to make you feel stupid for asking questions. I'm kidding...I really hate that!
Every single example I mentioned is a sign that you need to run, not walk, to the nearest exit. There is a difference between someone telling you something you don’t want to hear and not telling you anything at all. There is nothing wrong with the former. Sharing bad news happens all the time. There is plenty wrong with the latter. Don’t confuse the two!
RED FLAG 4: You have not provided documents to your service provider and they are not asking for them or challenging your failure to comply with production requests.
How do you expect the auditor to come up with an accurate number or your representative to advocate for you if you don’t provide requested documentation or you don’t respond truthfully and candidly to questions? The short answer is neither the auditor or your advocate can get to the “right” numbers. And you are going to pay dearly for withholding information.
The auditor can estimate a deficiency. Penalty and interest may be assessed on a tax debt that is not valid. You will be forced to prove the auditor wrong by providing all the data that you should have provided in the first place.
If your representative is not asking you for invoices, returns, work papers, contracts, purchase orders, general ledgers, chart of accounts, etc. you have a problem.
RED FLAG 5: There is no escape clause in the contract.
You should know how to end an engagement if you are not satisfied. Be wary of anyone who does not have written terms that let you seek help elsewhere. Everyone is friends when the sale is being made. You want to (1) know your options if you are not satisfied and (2) have it understood between you and your representative that you can leave if you are not happy.
Audits are collaborative. We know tax law. We know basic accounting rules. You know YOUR business. In fact, no one knows your business better than you. Good audit results are achieved when the tax rules are applied correctly to your unique way of doing business.
Don’t throw money at your audit! Participate in the process with your sales tax consultant. You won’t regret active participation. You might regret not participating in your audit.
If you feel lost or uncomfortable about how your sales tax audit, contact us for a free 30-minute consultation today!