Representing clients before the DOR and in state tax litigation.

• Author: Leadbeater, John Timothy
• Position: Florida

Generally, tax disputes with the Department of Revenue (DOR) begin innocently enough with a Notice of Intent to Audit Books and Records. If, after audit, the DOR auditor determines that the tax liability for the audit period is different than what the taxpayer has reported, the DOR will issue a Notice of Intent to Make Audit Changes (NOI). If the taxpayer and the DOR auditor cannot agree on the amount of proposed liability reflected in the NOI, a Notice of Proposed Assessment (NOPA) will be issued. The taxpayer can challenge the proposed assessment by filing a protest with the DOR. If the taxpayer does not file a protest, the assessment reflected in the NOPA becomes final and the taxpayer may then file either a complaint in circuit court or a petition in the Division of Administrative Hearings (DOAH). If the taxpayer files a protest, the DOR will issue a Notice of Decision, which the taxpayer can accept or reject and file a Petition for Reconsideration, or litigate the issues in either circuit court or the DOAH. This article will flesh out the salient details of this thumbnail sketch of Florida state tax protest and litigation procedures.

Notice of Intent to Audit Books and Records

There are several ways taxpayers can find themselves on the receiving end of a Notice of Intent to Audit Books and Records from the DOR, including:

1) a DOR auditor can prepare an Audit Assignment Request form when the auditor thinks an entity or business is worthy of an audit (be nice to DOR auditors);

2) a DOR auditor can prepare an Information/Violation Report;

3) a DOR auditor may identify unregistered taxpayers by looking at the suppliers and customers of taxpayer under audit (including out-of-state suppliers who may have nexus wit Florida);

4) a DOR auditor is responsible for reviewing the taxpayer's total organization, including related entities an other locations;

5) if the audit period includes a period when a prior owner was responsible for remitting the tax, an audit ca be assigned to the prior owner.'

The DOR must issue the Notice o Intent to Audit Books and Records in manner which will enable it to comply with time limitations contained in YE [sections]95.091. This provision limits the time within which the DOR can make a assessment to five years after the late of the date the tax is due or the return is filed.[2] This period is extended to six years where the taxpayer has made either a substantial underpayment of tax or has filed a substantially incorrect return.[3] Furthermore, the period for assessment remains open indefinitely where the taxpayer has failed to make any required payment of tax, has failed to file a required return, or has filed a grossly false or fraudulent return.[4] With the issuance of the DOR's Notice of Intent to Audit Books and Records, the foregoing described limitations periods are, tolled for two years.[5] However, the DOR must begin the audit within 120 days after it issues the notice, unless the taxpayer requests a delay.[6] If the taxpayer does not request a delay and the department does not begin the audit within 120 days after issuing the notice, the tolling period terminates.[7] As a matter of audit policy, therefore, the DOR will not issue its Notice of Intent to Audit Books and Records later than the date that is four months prior to the date the statute expires for assessment.[8] After the Notice of Intent to Audit Books and Records is issued, there is a 60-day period that must pass h before the audit can begin unless the taxpayer waives the 60-day period so that the audit can begin sooner.[9]

In the Notice of Intent to Audit Books and Records, the auditor will request that the taxpayer make available certain books and records. The DOR's authority to request such books and records is found in F.S. [sections] 213.35, which requires taxpayers to keep suitable books and records relating to taxes they are responsible for remitting until the time for assessment specified in F.S. [sections] 95.091(3) has expired. Furthermore, certain taxes, such as intangible, sales and use, and corporate income tax, have their own specific requirements to retain books and records in addition to the general requirements of F.S. [sections] 213.35.[10]

Failure to provide the DOR auditor with the requested books and records can result in the DOR making an assessment from an estimate based upon the best information available to it.[11] Furthermore, for sales and use tax purposes, if a dealer does not have adequate records of his or her retail sales or purchases, the DOR may make an assessment using a test or sample of the dealer's available records.[12] And, if the dealer's records are adequate but voluminous, the DOR may statistically sample such records.[13] Interestingly, although the DOR has attempted to draft sampling rules, to date none have been finalized. Therefore, the DOR has no rules concerning how sampling is to be conducted and what constitutes a .statistical" sample. Consequently, it is not uncommon for taxpayers to challenge the DOR's sampling methodology when protesting or litigating a tax assessment.

Notice of Intent to Make Audit Changes

A Notice of Intent to Make Audit Changes (NOI) is used to close an audit. This notice is presented or mailed to the taxpayer along with the auditor's workpapers that support the figures reflected in the NOI Generally, the taxpayer's file will remain in the DOR office from which the audit was conducted for 30 days from the date of the NOL The 30-day period provides an opportunity for a post-audit conference between the DOR and the taxpayer to attempt to resolve any issues before issuance of the Notice of Proposed Assessment (NOPA).

Sometimes the conference may result in the issuance of a revised NOL Typically, the revision will result in a reduced proposed assessment although revised proposed assessments which increase the...