What to Expect During an Audit
|This guidance document is advisory in nature but is binding on the Nebraska Department of Revenue (Department) until amended. A guidance document does not include internal procedural documents that only affect the internal operations of the Department and does not impose additional requirements or penalties on regulated parties or include confidential information or rules and regulations made in accordance with the Administrative Procedure Act. If you believe that this guidance document imposes additional requirements or penalties on regulated parties, you may request a review of the document.
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This document explains what to expect if you are selected for an audit by the Nebraska Department of Revenue (Department). We will do everything possible to make the audit go efficiently, with as little inconvenience to you as possible.
If you are selected for an audit, do not feel singled out. Being selected for an audit does not necessarily mean that we think you are reporting taxes incorrectly. The Department has the right to examine any taxpayer’s records, including electronic records, to determine if all taxes were properly paid, or in some cases, if a refund is owed.
An audit normally covers the most recent three year period. However, if tax returns have not been filed, the statute of limitations may be longer, and the audit period could be more than three years.
Our auditors are highly qualified and well trained. They are all college graduates with a major in accounting. Many of them are CPAs. Auditors will treat you and your employees with professional courtesy and respect.
Auditors will need a place to work to complete the audit in an efficient and timely manner. This will cause the least amount of disruption to your business. Generally, a desk/table close to a power supply is sufficient. If you do not have room at your place of business to accommodate the auditors, an alternate audit location can be discussed.
By law, except for a limited number of programs, any information we obtain from you must be treated as confidential. The Department takes this requirement very seriously and has instituted safeguards to protect your information. If you have any questions about confidentiality, please discuss them with the auditor. The Department also has a Taxpayer Bill of Rights. A copy will be provided to you prior to the start of the audit.
Audit Start Date
The first step in the audit process is deciding on the audit start date.
- A representative from the Audit Section will call to set up a mutually acceptable date and time;
- The call will be followed by a confirmation letter that includes the proposed audit periods and a list of records the auditors will need to examine;
- Before the audit starts, it helps to go through this list and make sure the records are readily available; and
- If you have any questions about the audit before it starts, call the person who signed the audit confirmation letter.
You may be asked to execute a Nebraska Extension of Statute of Limitations Agreement, Form 872N. This form allows the auditors to complete the examination of your records and allows you the necessary time to gather all required documentation to complete the audit for an established audit period. You are not required to sign an extension. However, we can be more flexible with you regarding audit start date, time to gather additional or missing documentation, and your work schedule if an extension is executed. In the event that an audit cannot be completed in a reasonable amount of time, and an extension is not executed, the Department may issue its audit findings based on the best information in the Department’s possession. You will have the opportunity to contest the audit findings and provide additional information prior to the audit being finalized.
The auditor assigned to your audit will then call you to discuss in more detail the records that will be required to complete the audit. Some examples of records needed include tax returns filed, backup to the returns, purchase invoices, sales invoices, and payroll journals. Auditors will cooperate with you when the request for production of records is considered too burdensome, to see if mutually agreeable alternatives can be used to fulfill the audit purpose at less expense or inconvenience. See Revenue Ruling 99-08-1 for more detailed information.
Initial Audit Meeting
At the start of the audit, the auditors will meet your representative or employee working on the audit. It is helpful if this is the person who is responsible for the accounting records and tax returns. You may also have your external accountant or attorney present if you wish. In this meeting, the auditors will ask some general questions about your business. They will ask about the location of your records and how the tax returns are prepared. Depending on the nature of your business, they may ask for a tour of the facilities. This helps the auditors to understand your business and to complete the audit effectively and efficiently.
Examination of Records
After the initial audit meeting, the auditors will review the accounting and tax reporting systems to decide how to proceed with the audit. In most cases, the auditors work independently. However, they may have some questions. If you prefer, they can save their questions and ask them at a pre-planned time during the day, or they can ask questions as they arise.
Sampling the Records
In most cases, the auditors will propose looking at a sample period of transactions. Errors found in the sample are projected over the entire audit period. Sampling provides accurate results with significant savings of time and expense for you and the Department. The sample period selected will be discussed so you understand how it works.
Review of All Records
Sometimes the auditors will examine all transactions for the entire audit period. This is usually done at smaller businesses, or when a sample would not fairly show the activity of the business.
Reviewing Electronic Records
In addition to using traditional hard-copy (paper) records, our auditors can utilize your electronic records to perform the audit. This can be done for the entire audit or a portion of the audit. Our ability to use your electronic records improves the accuracy of the audit and can reduce the amount of time spent at your location. It may also reduce the amount of paper documents you will need to gather for the audit.
Audit Results Meeting
After the auditors are finished examining your records, they will meet with you to go over the results. In this meeting, they will give you copies of their work papers detailing any overpayments or additional tax due. You should review these work papers closely and if you have questions, or believe an error has been made, please discuss this with the auditors. We know it is possible the auditors may have made an incorrect tax determination on a particular transaction. If you need time to gather additional documentation, you can establish a mutually agreeable date when the information is to be furnished. Providing all necessary information to the auditor in a timely manner helps resolve most, if not all, questions before the audit is issued.
Audit Findings Confirmed
You will receive a letter with the audit findings. For most tax programs, you have 60 days to pay or protest the audit. An information guide will be sent with the letter. It explains what to do if you do not agree with the audit findings. You may also request a payment plan if you cannot pay the entire amount at one time.
Your opinion is important to us. An Audit Evaluation will be sent to you, and we would greatly appreciate it if you complete and return it to the Department’s Director of the Compliance Division.
If you have any questions or concerns, please discuss them with the auditor or an audit manager or visit our Web site at www.revenue.nebraska.gov.
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