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How to Approach Sales Tax Audit – Tips from IRS Audit Group Newport Beach

To deal with budget shortfalls, state governments revenue agencies continue stepping up their efforts in raising revenue through sales tax audits.

You never ask for it, but you have been selected for and will be notified of a sales tax audit. At that point in time you may get confused – What should you do and what you should not? Most companies are not regularly audited by the state for sales and use tax purposes, so it is unlikely you have previously handled an audit. While the requested lists of records and documents that will be reviewed appear straightforward, there is much more to handling a sales tax audit. There are a lot of potential pitfalls during the interaction with auditors that may occur as you address the questions they typically ask.

Here are a few tips to Manage Your Sales and Use Tax Audit from IRS Audit Group Newport Beach. The best practices as listed below need to be considered in such situation.

Hire an external representative tax expert. IRS Audit Group Newport Beach has a pool of experts specializing in State Sales Tax matter. Once you are identified for audit, it is better to initiate communication with experts. They can discuss the audit process with you, provide some background on various sampling methods, and provide insights on specific industry issues targeted by the state. Also, make them aware of the initial schedules vs. revised schedules.
Ask your tax expert from if it is appropriate to perform a refund study or reverse audit at the same time to identify potential opportunities for refunds. IRS Audit Group Newport Beach can provide immediate solutions to such questions.
Do not engage in contingent fee arrangements on questioned items by the auditor unless you have already made the first pass. Otherwise, you may be paying them on reductions for errors made by the auditor or obvious exempt transactions.
If sales state tax auditors are doing a refund study/reverse audit, their fee should not be based on savings in periods outside the audit period. Their fee should always be based on offsets actually granted by the state. Payment should be made at the end of the audit, or a provision should be included to reverse any offsets not allowed.
A sales tax audit is not an ordinary occurrence. Therefore, you need to invest the proper efforts internally or with external assistance from experts like IRS Audit Group Newport Beach.

Lastly, be ready to play defence. Do not assume all questioned sales and purchases are taxable. Familiarize yourself with the regulations of your state with the help of expert advice from IRS Audit Group Newport Beach. Once you are convinced that questioned item should not be assessed, go ahead and challenge it. Also, understand any sampling techniques employed by the auditor, and be sure samples used are representative of your operations. If you have not experienced a sales tax audit before, and unfamiliar with your state’s regulations, or you have identified significant problem areas in your self-review, you may want to consider engaging a tax advisor to assist in your defence.

IRS Audit Group Newport Beach professionals are knowledgeable and experienced in assisting companies undergoing state sales and use tax audits as well as conducting overpayment reviews. Let IRS Audit Group Newport Beach help you navigate the audit landscape.

 

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RELEVANE OF ACCOUNT AUDIT AND MULTIPLE TYPES OF AUDITS

audit

There are multiple purposes for auditing of any enterprise.  It is mandatory for all publicly listed companies to audit their financial statements, and subsequently make it available to the public.   Audited financial statements can be used for improving internal controls or for assessing the financial position or performance of an entity.  The elements of financial transparency which results out of audit help in establishing a good relationship with investors and the company.

While preparing for an audit, it’s important to set internal controls and policies that are monitored and reviewed by the internal audit team.  The auditing group which performs such audit collects substantial information relevant to the enterprise, and issues statement or opinion about the quality and integrity of the company’s operations and financial status.  During the statutory audit, the auditor has to review the processes and procedures by which the financial information was prepared.  That is, the auditor has to check if the preparation of the company’s financial reports is aligned with GAAP or other applicable reporting frameworks.  Statutory audits underscore the importance of financial reporting in corporate transparency.

There are multiple types of audit as elaborated below;

Financial – Financial audits typically look into the accounting controls present in the general ledger or sub-ledger systems.  Financial statement auditing is the focus of our external auditors.

Operational – Operational audits focus on the review and assessment of a business process.  The activities of the business process may result in a direct or indirect financial impact on the organization.  Internal Audit primarily focuses on operational audits but can extend the scope to include accounting procedures that can impact financial reporting.

Compliance – Compliance audits review the level of compliance with internal policies or external regulatory requirements.

Information Systems – Audits of Information Systems look at the overall infrastructure and network controls that relate to the security of the network and the systems.  Such audit includes technical operations, data center operations, project management procedures, and application controls.

Integrated Audits – Integrated audits look at controls that address financial, operational, compliance and information systems risks.  These audits are typically centered on a business cycle or a specific part of a process.

Auditors protect the public from investing in companies that use corrupt business practices or that attempt to defraud investors with false financial statements.  They also provide assurance to investors and creditors that company funds are handled appropriately.  By reviewing financial statements and digging into accounting records, auditors can determine if the financial statements and records accurately depict the company’s true financial profile.

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