Are you or your clients currently undergoing a state tax audit? Have you or your clients received an audit assessment you disagree with? If the answer is yes, what are your options?
If you disagree with the adjustments being proposed or assessed, it is usually in your best interest to attempt to resolve the issue at the lowest level possible (audit or appeals). Obviously, the issue, the facts and the strength of your position will determine the approach you should take.
Statute of Limitations
In Minnesota, the Department of Revenue (DOR) generally has 3½ years after a return is due or filed, whichever is later, to audit your return and send you a formal notice of any change in the amount of tax, penalty and interest you owe, or of a refund.
The time limit to adjust your return can be extended if:
■ you amend or the Internal Revenue Service (IRS) adjusts your federal return,
■ you and the IRS sign an agreement to extend the time period to adjust your federal return,
■ you and the Department of Revenue sign an agreement to extend the time period to adjust your state return,
■ you fail to report 25 percent or more of your gross income on your return,
■ you omit more than 25 percent of the taxes reported on a sales tax or withholding tax return, or
■ you intentionally understate or fraudulently file your return.
These are the most common circumstances in which time limitations are extended. Other situations may also dictate an extension. Note: there are no time limits if you have not filed a return.
After The Audit
If you agree with the audit, you must pay the full amount of tax, penalty and interest due within 60 days of the date the MN DOR notifies you. Otherwise, you will also owe a late payment penalty and additional interest.
If you are entitled to a refund, the MN DOR will notify you and issue you a check.
If you disagree with the audit, you have 60 days from the date the MN DOR notifies you to appeal informally to the Department of Revenue or formally to the Minnesota Tax Court.
You have 60 days from your notice date to:
■ pay the amount due without further penalty or interest, or
■ file an informal appeal with the Department of Revenue, or
■ request an extension to file an appeal with the Department of Revenue, or
■ file a formal appeal with the Minnesota Tax Court.
Note: During the time of the appeal, interest will continue to accumulate on any unpaid tax determined to be due. Therefore, it is important to consider if you agree with any amount of the assessment and pay that tax to stop the interest.
If you are unable to file the written appeal during the 60 day period, you can request a 30 day extension prior to the expiration of the 60 day period.
After the Appeal
If you still disagree with the determination of your appeal, you will have an additional 60 days to appeal to the Minnesota Tax Court. If you disagree with the Minnesota Tax Court, the next step is the Minnesota Supreme Court.
Please contact me if you are undergoing an audit and would like representation, or need to appeal a state tax audit. The initial consultation is free.
I handle state tax audits and administrative appeals involving individual and corporate income tax, and sales and use tax. I do not represent taxpayers in the court system, as I am not an attorney. Whether or not an attorney should be involved depends on your case, and if you desire to take your case all the way to court. If you contact me, I will be honest and upfront regarding whether you should get an attorney involved or not. I will consult tax attorneys to obtain their opinion, if necessary.
If at any time during the appeal,you feel it is necessary to get an attorney involved, I will provide referrals to tax attorneys for your convenience.