No one wants to deal with an audit, but odds are if you own a business in a state that collects business personal property taxes, you’ll face an audit at some point. Getting audit support from a CPA can make the process run smoother and keep you from paying more than you should. If the business personal property tax auditors find something, your business could face fines of up to 60%. Getting audit support as soon as you receive your audit notice is the best way to protect your business.
The most important things for business owners to know about audits are:
- What a business personal property audit is
- How the audit process works
- Why using a CPA for audit support is a good idea
We’ll cover all of those things in this post.
WHAT IS AN AUDIT?
Audit is a generic accounting term, and audits come in different forms. An outside accounting firm typically performs a financial audit to determine if a company presented its financial information fairly and accurately and prepared all financial statements according to generally accepted accounting principles. The firm then presents the audit report to the company’s owners.
An audit can also refer to when the IRS reviews your personal income tax returns to determine if you paid all the taxes you owed.
The type of audit we are focusing on is a business personal property tax audit. Business owners pay two kinds of property tax: real and personal. Real property is land and buildings. Personal property is any tangible asset the business uses to produce income.
Examples of personal property include:
- Computer equipment
- Office furniture and fixtures
- Machinery and equipment
A business personal property tax audit is when your local tax authority conducts a review to make sure your business reported all relevant personal property and categorized it correctly. As we covered in our guide to decoding property tax bills, the categorization of your assets has a significant impact on how much tax you pay—local taxing authorities tax assets based on depreciation schedules. The depreciation schedule varies based on the asset’s category. You are responsible for categorizing your assets correctly for tax savings and avoiding any audit discoveries.
WHO WILL CONDUCT THE AUDIT?
Most states have requirements to review business personal property periodically. But counties often lack the time and resources to conduct the audits themselves. In that case, county taxing authorities usually contract out these audits to firms specializing in business personal property tax audits.
While the use of third-party audit firms is legal, it raises concerns for you as the business owner and taxpayer. Firms are often paid and incentivized based on how many audits they perform. Business owners should question if the auditing firm is acting in the firm’s or the taxpayer’s best interest.
Without full disclosure from counties and audit firms about their processes, it can be difficult for taxpayers to know the requirements and protections they have.
WHAT IS THE PROCESS FOR AN AUDIT?
Audit processes tend to follow a standard pattern. Below is the process for North Carolina. Other states that collect business personal property taxes likely are the same.
THE AUDIT PROCESS IS:
- You Receive a Letter of Intent to Audit. This letter, from the county tax office, is your notice that the county is auditing your business. As soon as you get this letter, you should contact a CPA about getting audit support.
- You Receive a Letter Requesting Documents. This letter from the audit firm outlines what documentation the auditors want from your business, and then they require that documentation. Third party auditors often ask for information that is well beyond their scope of work.
- Discovery/No Discovery Letter. This letter is how the auditors will report their initial findings. Discovery means they found a discrepancy. No discovery means the audit did not uncover any issues.
- Appeal. The appeal is your chance to refute any of the audit’s findings. Appeals must be filed within a certain period of time after discovery.
- Resolution. The resolution is the final step in the audit. If the audit uncovered any issues, the resolution includes the payment of any taxes and fees.
GETTING AUDIT SUPPORT FROM A CPA
Audits are stressful. Taxing authorities and audit firms know this. The process is confusing to most business owners. Taxing authorities and firms count on business owners to pay fines without questions or appeals. And, with penalties as high as 60%, audit discoveries can collect significant revenue for tax authorities.
Hiring a CPA firm for audit support ensures someone advocates on your business’s behalf so you don’t pay more than you should.
A CPA CAN OFFER AUDIT SUPPORT, INCLUDING:
- Defending your property tax return
- Providing the auditing jurisdiction with necessary or requested information
- Finding opportunities to mitigate audit expenses
- Providing support for auditor-requested site visits
- Managing the back-end of the audit process
- Initiating audit appeals for unsatisfactory audit results
A CPA can also help identify areas of non-compliance, tax reduction opportunities, and solutions to mitigate future overpayments.
WHY BUSINESSES TRUST SHARON LYALL, CPA, FOR AUDIT SUPPORT
Sharon H. Lyall, CPA, and her team have helped business owners for more than 20 years by adding to their bottom line and identifying property tax savings opportunities. Our firm has unique expertise and experience in business personal property tax, a misunderstood area of taxation. Without the help of a trusted adviser, a business owner could easily end up overpaying after an audit. If you’re under audit, contact us today so we can guide you through the process.