There is not much worse of a feeling than opening mail with a sales and use tax audit notice from the Florida Department of Revenue (FDOR). Barring exceptional facts and circumstances, you or your client will have to go through the audit process. It is likely to be inconvenient and difficult. Hopefully, you or your client are one of the few that can achieve fair audit findings to resolve the matter at this point. If you or your client are in the majority, then you have to prepare for the protest process.
The protest process involves either the formal or informal protest process. This article will address the informal protest process. Statistically speaking, almost all protests utilize this process to contest audit findings. It will be helpful to know what the process holds for you or your client to make use of the time you have between the audit workpapers, filing the informal protest and then providing information to support the arguments in the informal protest.
Following the issuance of the audit workpapers (the DR-1215 Notice of Intent to Make Audit Changes), you may have days to months before the Notice of Proposed Assessment (NOPA) is issued. The informal protest will be due within 60 calendar days of the date on the NOPA. Rule 12-6.003(2)(a), Florida Administrative Code (“FAC”), spells out the requirements for what should be contained in the informal protest. A link below to another article addresses those requirements and the protest process generally.
While sixty days sounds like a lot of time, there are a multitude of reasons why it actually isn’t – the most common is the fact that information and arguments have to be finalized around you or your client operating their business. Mixing in holidays or vacations only shortens this time period. So, it is imperative to get started on preparing arguments and gathering information as soon as you receive the audit workpapers – regardless of whether you utilize the informal conference period that is permitted within 30 days of the auditor issuing the audit workpapers.
In starting to prepare for the informal protest process, it is important to note that Tallahassee will presume the audit findings are correct. And, this presumption carries a very high burden of persuasion to overcome in actual events. This means you or your client need to fully understand the audit findings to identify how the audit exhibits involve incorrect calculations, incorrect legal arguments, or mischaracterize audit period transactions. The key is to get responsive information together that shows you or your client’s actual operations and the proper tax treatment for audit period transactions.
Ideally, you or your client would include all supporting documentation with the informal protest when it is filed. If this doesn’t or can’t happen, for whatever reason, then you or your client will need to work quickly to get all of the information together. Shortly upon filing, Tallahassee will send out a qualifying protest letter. This generally will precede a letter requesting all information and documentation supporting the protest arguments. This information request likely will provide you with a deadline in 30 days to produce the responsive information. As this request is frequently mailed, the actual receipt of the request could mean you or your client have lost up to a week already to respond.
Once you or your client have produced the responsive information, the next step in the process involves the assignment of the protest to a conferee. This process can tax several weeks or several months depending on the time of year and the workload in Tallahassee. The protest is assigned first to a supervisor who then will assign it to a conferee to handle the protest process. Upon assignment, the conferee should reach out to you or your client fairly quickly to introduce themselves. In some instances, the conferee will provide another opportunity to provide information – generally allowing 15 days. In other instances, the conferee will introduce themselves and ask for conference dates within a short time period (assuming a conference has been requested).
Up to and in advance of the protest conference, the conferee should review the provided information to prepare the Notice of Decision (NOD) that responds to the informal protest for the audit. The notice will either sustain or revise the audit findings. If the audit findings are not revised, the FDOR might issue a closing agreement that offers to settle the matter for less than what is sustained in the NOD. The informal protest and information produced will determine if this occurs and the matter is resolved at this stage or will require further protest procedures.
As you can see from the events noted above, there are opportunities to provide information to support you or your client’s informal protest to correct overstated or erroneous audit findings. However, given the high burden of persuasion to show the auditor was wrong, the time period is realistically limited to figure out what needs to be provided and then actually gathering and organizing the information to timely submit it for consideration with the informal protest. Delays in the preparation of arguments or documentation can be costly through the time and effort needed to complete the protest (both informal and formal) process or through the sustained tax from the audit findings. To avoid any possible delay, you or your client need to start as quickly as possible in preparing for the protest process. For this reason, we provide a free initial consultation to review the audit findings and identify the best course of action (arguments and associated documentation) to work and correct the audit findings.
In this case, you or your client is guilty until you prove yourself innocent. With the clock constantly ticking, please make sure you or your client make use of every second available to avoid overpaying tax, penalty, and interest to the FDOR from a sales and use tax audit.
About the author: Mr. Parker is a sales and use tax attorney and an associate in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A., based in the firm's Tampa office. Mr. Parker's practice includes state tax audits and controversies involving sales and use tax and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Parker received his accounting degree, law degree, and L.L.M. in Taxation from the University of Florida. You can learn more about Matthew in his firm bio.
At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is Florida taxes, with a very heavy emphasis in Florida sales and use tax. We have defended Florida businesses against the Florida Department of Revenue since 1991 and have over 100 years of cumulative sales tax experience within our firm. Our partners are both CPAs/Accountants and Attorneys, so we understand both the accounting side of the situation as well as the legal side. We represent taxpayers and business owners from the entire state of Florida. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
Need to learn more about Florida Sales Tax? Click HERE to see a list of up and coming speaking events!
Additional Resources
Florida Sales Tax Informal Written Protest, published November 17, 2018, by James Sutton, CPA, Esq.
Dear Taxpayer: Sales Tax Audit - Now What?, published January 8, 2018, by Matthew Parker, Esq.
FL DOR Sales Tax Audits – Beware of Electronic Records Requests, published December 12, 2014, by Matthew Parker, Esq.