In a previous post, I mentioned North Carolina's new law that provides statutory guidance on when and how North Carolina may require a group of corporations to file a combined return.  The new law applies to tax years beginning on or after January 1, 2012.  The new law does NOT apply to tax years beginning prior to January 1, 2012; therefore, I thought I would provide some additional clarification for companies who are currently under audit and do NOT have an agreement with North Carolina regarding whether they should file a separate or combined return.

According to North Carolina's notice, a corporation that has intercompany transactions in tax years for which a corporate income and franchise tax return has already been filed and is currently under audit may initiate a review of the transactions by the Department by informing the examining auditor of the intercompany transactions and that the corporation is interested in reaching an agreement regarding the tax treatment of the intercompany transactions, including determining tax liability for tax years that have been filed and establishing a methodology for filing future tax returns. The agreement will require the corporation to inform the Department of any future material changes to its structure or operations.

If your company is currently under audit, what should you do?  Should you wait for the auditor to raise the issue or issue an assessment? Or should you initiate a review to reach an agreement?

The answers to these questions are unique to each corporation's situation.  Therefore, if a separate return was filed for a corporation that is a member of a controlled group or affiliated group of corporations, and material intercompany transactions exist, an analysis should be completed to determine the proper strategy or action to take.