What to Expect From a Texas Comptroller of Public Accounts Audit
Below is only a sample of the wide range of topics you can expect to encounter in your audit by the Texas Comptroller. We have only provided a brief description here, but, you can rest assured that we are intimately familiar with these aspects of your audit as well as all others. These are merely provided as a guide and as a service to you. Please contact us so that we can sit down and go over these and other areas of concern to you. Please note that your first appointment with one of our professionals is free.
The Audit Questionnaire
This document will be your first contact with the Comptroller. It will arrive in the mail along with a notice of audit telling you which taxes will be audited. Among other things, you will designate a contact for the auditor and designate who in your organization can sign a statute waiver. (see statute waiver below)
Whether you designate our firm to handle your audit or if you chose to handle the audit in-house, we can assist you in the completion of this document in the best interest of your firm.
The Auditor
Good news, bad news… There are some exceptional auditors working at the Comptroller's Office. If you get one, you will be treated fairly and hardly notice their presence at your business. But there are some things you need to know before they come to meet you:
For fiscal year 2010 the Texas Comptroller's audit division generated $10 billion in tax revenue from 15,000 audits. Compared to California and New York, Texas generated twice the revenue with only half and one-third of the staff of those two states, respectfully. You must also note that while less than 50% of their audits are deficiencies, Texas auditors are worth over $4,000 per hour.
The larger you are the more likely it is that you will get a more tenured and experienced auditor. Of course the opposite is also true, the smaller your business the less experienced your auditor. This can be especially true if this is your first audit by the Comptroller.
You may be surprised to learn that your auditor may not even be an employee of the Comptroller. It's true. The Comptroller initiated the Contract Tax Compliance Examination Program in June 2001. The Comptroller contracts with individuals or firms to conduct tax audits. These auditors do not get the same training as the Comptroller's regular audit staff. The supervisor's span of control over these contract auditors is also extremely high. You may never see a supervisor.
Whomever the auditor, our knowledge of the Comptroller Staff, our experience with the Comptroller Staff, and our reputation with the Comptroller Staff will benefit the overall auditing process of your firm.
Statute Waiver
Normally, the statute of limitations for any audit is four years. The Statute Waiver is a document that allows the Comptroller to freeze the statute of limitations. Report periods that would be lost to statute can be kept open for assessment or refund if both parties agree to extend the statute by signing this document. Decisions regarding this document should be carefully considered because of the implications it may have in your situation.
We will be happy to discuss your options and recommend a proper course of action regarding this document.
Sampling versus Detail
The Comptroller auditor will employ a variety of sampling techniques and apply the results to your entire audit period. The effects can be dramatic and costly. In certain instances they may only examine as few a number as 100 transactions and extrapolate the results. One error can be catastrophic.
We are experts in the sampling techniques used by the Comptroller as well as evaluating their results. We will gladly review the auditor's proposed methodology. We will explore alternatives so that your best interests are preserved and make constructive and creative recommendations to ensure that any adjustment or refund is justified and fair.
Notification of Sampling Procedures for State Tax Audit
Appeals Process
Your first appeal will always be directly with the auditor. We strongly encourage an open dialogue with the auditor throughout the audit process. Our experience is that whenever that communication breaks down, conflicts always develop.
After the auditor, the appeals process can be segregated into three distinct processes, the reconciliation conference, the Independent Audit Reviewer Process, and finally the Redetermination Process. As you progress through these processes, the tone of each, if not the process itself, becomes more and more formal.
The reconciliation conference is simply a conference at the conclusion of your audit with the auditor and his/her supervisor. You should expect to at least find out why the auditor has or has not made the adjustments you disagree with.
The Independent Audit Reviewer Process is meant to be an informal process but this will be the first time you meet with someone independent of the auditor. The Independent Audit Reviewer or IAR, reports directly to the director of Tax Administration/Tax Policy. The IAR will prepare a report that includes their findings and recommendations. The director will either approve the report or not and you will be notified of the results. This process should take less than 2 months.
The Redetermination Process, often called the hearings process, is a formal proceeding before an administrative law judge. The audit division has their own attorney present their side of the issues. The rules of evidence are applicable, hence the fact that it is much more formal. This process can take 6-18 months. This completes the appeals process with the Comptroller. The next step would be District Court.
We are uniquely positioned in this area due to our extensive experience. Mr. Cochran helped develop the Dispute Resolution Process which was the forerunner of the Independent Audit Reviewer Process. He was a DRO for the last 11 years of his career with the Comptroller. He has held thousands of conferences over those years with countless types of business and countless numbers of issues.