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In 1999, the Texas Legislature enacted a bill authorizing certain taxpayers to perform managed audits under the supervision of the Comptroller.  The managed audit option is only available for Sales and Use Tax audits.  The initial step in a managed audit is the taxpayer’s request for a managed audit within 30 days of the date that the Audit Notification Letter was sent.  If fieldwork has already begun or if the previous audit took less than 120 hours for the auditor to complete; the managed audit request will be denied.  In addition, only two sequential managed audits are allowed.

 

FACTORS TO CONSIDER TO GET APPROVED BY THE TEXAS STATE COMPTROLLER

There are several factors that are considered in approving a taxpayer for a managed audit including:

  • The taxpayer’s qualifications for performing the managed audit. For example, a sole proprietor or the tax return preparer for a company may not perform a managed audit.  The state would consider this akin to the fox guarding the hen house.  Along this same vein, the person performing the managed audit should have extensive knowledge of the sales and use tax laws in Texas.
  • The taxpayer’s history of compliance. In other words, have you reported and paid your taxes on time and you must be current on all taxes to the Comptroller (e.g. Franchise tax, etc.)
  • Amount of time and resources available to dedicate to the audit.
  • Availability of taxpayer records. If you are missing any records due to disaster, record retention policies, etc. you will not be approved for a managed audit.
  • Taxpayer’s ability to pay the assessment; in other words if the company is in bankruptcy, the managed audit request will be denied.
  • Audit history. Managed audits are never approved for a first-time audit.
  • Permit status. The taxpayer must have been permitted for sales and use tax for the period being audited.

Two great reasons you would want to choose the managed audit option.

  1. When you manage your own audit, penalty and interest are waived. In exchange for managing your own audit, the State waives all penalties and interest on your audit; except for any tax collected, not remitted errors.  In almost all cases, the waiver of the penalty and interest far outweighs the fee you would pay our firm to conduct the managed audit.
  2. You (or Brown Goertz & Co.) can manage the timelines of the audit. When a State Auditor audits you, you are at the mercy of their schedule.  They can have up to 30 audits that they are working on and they may disappear for months.  This can be frustrating as it disrupts your business and causes undue stress.  We work with you and the auditor to set forth a very definitive timeline and we manage that timeline.

Why you may want to consider hiring Brown Goertz & Co. to conduct a managed audit for you

  1. We are experts in Texas Sales and Use Tax.
  2. We are “on your side”. When you are audited by a State Auditor, they are looking for money that you owe the State. They approach all transactions with the “how can I make this transaction taxable” mindset.  While during a managed audit, we are bound by the policies and procedures set forth by the Comptroller, we don’t take a “black and white” approach to the audit.  Are there rules that can be applied to the transaction to make it non-taxable, versus taxable.  There are many rules throughout the Texas tax code that can apply to your transaction that aren’t necessarily “in” the tax code that applies to your industry.
  3. We are creative. If there are missing documents to prove that a transaction was taxed appropriately and therefore not an error in the audit, we work with you to get that documentation.  A state auditor isn’t going to tell you that if you get them “this other piece of paper” that will prove that the transaction was taxed properly.  We do that.
  4. We are easy to get along with. Sometimes State Auditors aren’t very easy to get along with.  They can be argumentative, dismissive and not helpful to the process. Sometimes, their very presence in your business causes stress to everyone.  We are on your side, collaborating with you to get you through the audit as quickly and stress-free as possible.
  5. When the audit is over, it will be correct. Some audits can go on for years and years due to the auditor’s lack of management of timelines and ongoing discussions regarding appropriate taxability, many times requiring you to then go through the appeal process just to get the audit corrected.  Because we are experts, we are on your side, and we are collaborative; when the audit is completed, it will be correct.  You will have a good understanding of changes needed in your processes to assure future compliance and there will be no need for ongoing appeals.