Everyone is aware that the recent pandemic has impacted businesses and the overall economy. This necessarily has impacted the amount of tax revenue going to the state of Florida and its counties. What you might not have noticed is that the pandemic has also greatly impacted the operations of Florida - beyond the issuance of unemployment benefits. During the pandemic, the Department of Revenue has held off on issuing notices - including both audits and protests - for over three months. However, that hiatus is about to end.
Part of the reason for not issuing notices is that Department personnel, like that for many businesses, has not been working out of offices but has been remotely operating from home. this necessarily impacted the ability to access the Department's system and prepare and mail audit notices. The Department has indicated that this is going to change within the next several weeks. While the pandemic is still ongoing and it is not a good time to receive a Department notice ( as if it ever is), businesses need to prepare for a possible audit notice and what that entails.
With the long layoff, businesses can expect auditors to be even more "active" in following up on the multitude of audit notices they likely will be issuing. In not having really had work for close to six months, auditor will be looking to move each and every audit they issue. If you or your client receives an audit notice, you can expect a quick call (before or just after issuance of the FL sales and use tax audit notice, Form DR-840) from the auditor. In addition to asking about the business generally, the auditor is going to push to come to the business's location to inspect its records. The auditor is going to set aside at least a couple days for this review.
As businesses are still trying to recoup lost sales activity and revenue, it is important that the business know how to most efficiently prepare for and handle auditor requests and the audit process generally. The audit notice will provide a statutory 60 day period to prepare for the audit before the field work can commence. Many auditors will not identify this fact. Businesses don't have to utilize the full 60 days but you need to know you have up to that period so that it isn't "bullied" into inconveniently starting audit field work before the business is ready.
To be prepared for the audit field work, the business needs to have its records available for the three year audit period. During these unique economic times, that can be challenging. Due to the coronavirus, many businesses have temporarily closed. Unfortunately, for some of those, that will ultimately prove to be permanent. You or your client need to know that the Department is not likely to simply "understand" that the coronavirus forced the business to close. With closures, this likely will impact the access to business records.
Owners/officers of a closed business might not have the funds or desire to store hard copy documents for the business. Additionally, failure to pay for access to electronic records (like QuickBooks or other sales systems) can mean the permanent inability to retrieve prior operations information almost immediately from the point of nonpayment. This is very dangerous as Florida statutes put the burden on taxpayers to maintain records related to their operations and the tax reported and due. In the absence of records, auditors are given the statutory authority to use the "best records available" and/or estimate tax due. Shocker, this is not going to be in favor of the business.
A lack of records not only leads to incorrect audit findings, it limits the business's ability to contest the audit findings on protest. There is a statutory presumption in the informal protest process that the audit is correct. Generally, this presumption must be overcome by business records clearly showing audit error. Again, this is a very high burden to overcome.
In these unprecedented times, tax professionals have to provide all kinds of advice and guidance to clients. This necessarily needs to include warnings about a possible audit notice - that could come in a couple weeks, months or years. Even a business that is closing needs to prepare for issues arising from an audit notice. Closed businesses that aren't prepared for or don't "fight" an audit notice can unwittingly encounter other difficulties from the Department later. Apart from collection activity for unpaid returns or audit findings, the Department can assert personal liability or even initiate criminal investigation. Those issues are beyond this article. However, they further affirm the need for businesses to prepare for audit notices that are set to be issued en masse.
Here at Moffa Sutton & Donnini, we are dedicated to helping Florida taxpayers though the minefield that is dealing with the Florida Department of Revenue. This number of taxpayers is only increasing as Florida moves to adopt Wayfair based statutes that apply reporting and remitting requirements on remote sellers. This makes it even more important for you and your client to be ready and advised for the audit and protest processes. We offer a free initial consultation that can help you and/or your client understand audit issues you will face and how best to address the situation.
About the author: Mr. Parker is an associate in the Law Offices of Moffa, Sutton, & Donnini, P.A., based in the firm's Tampa office. Mr. Parker's practice concentrates on sales and use tax and includes state tax audits and controversies proceeding from audit through administrative litigation involving sales and use tax and all other state taxes including reemployment tax, 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 Mr. Parker in his firm bio.
About the firm: 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 the situation behind you.
ADDITIONAL RESOURCES
Florida Sales Tax Audit Help, published August 24, 2020, by James Sutton, CPA, Esq.
Florida Sales & Use Tax Audits: Dueling Perspectives, published April 6, 2014, by Matthew Parker, Esq.
Protest a FL Sales and Use Tax Audit, published August 8, 2019, by Matthew Parker, Esq.
FL Sales Tax Audit - Understanding Auditor's Perspective, published September 3, 2020, By Steve Middel
Florida Sales Tax Audit Help, published July 14, 2013, by James Sutton, CPA, Esq.