State income tax compliance always seems to come in "crunch time." "Crunch time" meaning, state income tax compliance seems to get squeezed between the federal return being finished late, and state return due dates. Therefore, most companies and tax practitioners are rushing to get the state returns done in a small amount of time - "crunch time."
So what does that mean?
Well, it more likely than not means that issues and opportunities are being missed on originally filed state income tax returns.
What can you do about it?
If you can't change the timing of the federal return being completed, and you can't change the state return due dates, then you have a few options:
- Do as much prep work that you can before the federal return is done
- Review your past state audit files to ensure items won't be missed on this year's return
- Stay up to date on law changes and court case developments
Another option is to complete a "lookback review" after the returns are filed. What is a "lookback review"?
A "lookback review" or LBR, is a detailed, thorough review of a company's state income tax returns to determine what issues and opportunities exist. Once these issues and opportunities are identified, a company may choose to file amended returns to obtain refunds or simply change their positions prospectively. A proper LBR should involve more than just reviewing the state income tax returns, but also the federal return, trial balance, etc. In most cases, information other than the state returns lead to identification of refund opportunities.
In addition to the compliance time crunch, lookback reviews should be completed when a federal income tax audit is in-process or wrapping-up, and/or when a state income tax audit is in-process. Identification of taxpayer favorable positions or changes may reduce audit assessments and tax that may be due on state RAR amended returns.
Businesses of all sizes can benefit from a LBR. A LBR is scalable and can be limited to a few states that are generating the most tax.