How does an audit begin?
Most audits begin with receiving a letter from the Department. The letter often provides information related to records needed and or what the Department believes to be of issue.
Will I be given an opportunity to provide information if I do not agree with the letter received?
Always. Many audits involve the exchange of information between you and the Department before the audit is concluded. Before an assessment is issued, the Department sends a preliminary findings letter called a Notice of Intent to Assess is issued. If you disagree with any aspect of this notice, you should file a “dispute” of this notice, which will give you another opportunity to provide additional documentation or explanation. To file a dispute, promptly complete and return the response form by the due date stated on the notice.
What happens after the Notice of Intent to Assess letter is sent?
If no response to the preliminary notice is received or after the information provided is reviewed, an assessment will be issued. If you disagree with the assessment, you have the right to appeal it within 60 days. Submitting an appeal is easy and does not require an attorney. Complete the Appeal Response Form that is sent with every assessment issued.
Why am I being audited? Have I done something wrong?
Businesses
If you are in business for any length of time, you can expect to be contacted by an auditor from the Vermont Department of Taxes.
There are many reasons you might be selected:
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If it appears you are not registered for a tax where there is a likely tax liability.
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If the figures you reported on returns vary from what might be expected.
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The Department has data that indicates a potential discrepancy in reporting.
The fact that a business is being audited does not mean you are suspected of tax evasion.
Individuals
The Department reviews information from multiple sources, including but not limited to the IRS, US Customs, and the Vermont Department of Labor.
Typical questions that may arise include:
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There is an indication that you have a requirement to file, and we are unable to locate your return.
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Based on the information we have at hand, it appears you may have made an error on your Vermont return or School Property Adjustment Payment application.
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The IRS made a change to your return, and you have not amended your Vermont return.
What is the audit period?
Typically, three years, with some exceptions for six or seven years following the tax year, the discrepancy was discovered to have happened.
What records will be needed?
Electronic records with hard-copy backup for the audit period or a test period. Depending on the taxes being reviewed, the requirements may vary.
Here is a list of commonly requested records by tax type:
Personal Income Tax
For some individual income tax discrepancies, the original documents you received or filed will help us resolve the issue. We may also ask for electronic records with hard-copy backup for the audit period or a test period. Depending on the taxes being reviewed, the requirements may vary. If you encounter difficulties with the records being requested, we will work with you to identify what other records would suffice.
Corporate Income Tax
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Corporate federal and Vermont tax returns and related supporting work papers
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Copies of the depreciation schedules for the audit period along with supporting work papers and financial statements, trial balances, profit and loss, etc.
Sales and Use Tax
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Copies of filed returns for audit or test period along with supporting work papers
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All exemption certificates for non-taxed sales
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Purchase and sales invoices
Withholding
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Payroll records
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W-2s, W-4s, 941s
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Vermont withholding returns for the audit period
Other Records You May Need
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Chart of accounts
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General ledger in electronic media format
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Cash receipts and disbursements
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Supporting detail for all Vermont returns filed
How much time will an audit take?
Businesses
That varies based on the size of your business and how your records are kept. The time may also vary based on any issues that are discovered once we have initially reviewed your records. Initially, you can expect an auditor onsite for three days to two weeks, with a couple of months of follow-up.
Individuals
The time varies based on the issues at hand. In most cases, we can close individual audits within 60 days of receiving the requested information.
Do I need my accountant?
That is up to you. Most audits are conducted without the accountant present.
I corrected this audit issue with the Internal Revenue Service already. What do I do next?
If the IRS audited you and the issues were resolved with the IRS, unfortunately, we do not get that information from them. The IRS reports to us that they questioned a filing but not how it was ultimately resolved. Sending us a copy of the IRS determination will usually resolve the matter.
If I owe money, can I make a payment arrangement?
Yes, installment payment agreements can be arranged through our collections division.