Audits | Frequently Asked Questions

Field Audits
Desk Audits
Household Income for School Property Adjustment Payments (Prebate)


Field Audits

Why am I being audited? Have I done something wrong?

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:

  • If it appears you are not registered for a tax where there is a likely liability.
  • If the figures you reported on returns vary from what might be expected

The fact that a business is being audited does not mean you are suspected of errors or tax evasion.


What is the audit period?

Typically, three years with some exceptions for six or seven following the tax year the error or discrepancy was discovered to have happened.


What records will be needed?

Electronic records with hard copy back up 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:

Corporate Income Tax

Corporate Federal and Vermont tax returns and related supporting work papers. 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

Copies of filed returns for audit or test period along with supporting work papers. All exemption certificates for non-taxed sales. Purchase and sales invoices.

Withholding Tax

Payroll records, W-2s, W-4s, 941s and VT withholding returns for the audit period.

General

Chart of accounts, general ledger in electronic media format, cash receipts and disbursements, supporting detail for all Vermont returns filed.


How much time will it take?

That varies based on the size of your business and how your records are kept. The time can 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.


Do I need my accountant?

That is up to you, most audits are conducted without the accountant present.


If I owe money can I make a payment arrangement?

Yes, installment payment agreements can be arranged through our collections division.

Desk Audits

Why am I being audited? Have I done something wrong?

We review information from multiple sources including but not limited to the IRS, US Customs, and the Vermont Department of Labor and it appears:

  • There is an indication that you have a requirement to file and we are unable to locate your return
  • Based on the information we have received you made an error on your Vermont return or School Property Adjustment Payment application.
  • 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 following the tax year the error or discrepancy was discovered to have happened.


What records will be needed?

For some Individual Income Tax discrepancies sometimes, the original documents you received or filed will help us resolve the issue. Electronic records with hard copy back up 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 in identifying what other records would suffice.


I corrected this audit issue with the Internal Revenue Service already. What do I do next?

If the IRS audited you and you responded to them with information to clarify it with them, we do not get that follow up information. The IRS reports to us that they questioned a filing but not how it was ultimately resolved. A copy of the IRS determination will usually resolve the matter.


How much time will it take?

That varies based on the size of your business and how your records are kept. The time can also vary based on any issues that are discovered once we have initially reviewed your records. In most cases we can resolve the issue within the 60 day of receiving the requested information.

Household Income for School Property Adjustment Payments (Prebate)

What is Household income?

Household income is basically all positive income figures from your Federal 1040, lines 7 through 21 or 1040A, lines 7 through 14b, plus some Nontaxable items, less certain eligible deductions.


What Non taxable items are included in Household income?

One item is Tax exempt interest (Box 8b) on your Federal 1040 and 1040A and the Nontaxable portion of Social security benefits received, the difference between boxes 20a and 20b from your Federal 1040 (1040A difference between boxes 14a and 14b). Some other items are Support money received from others, child support received and cash gifts.


Are there any deductions eligible to reduce Household income?

Yes, there are quite a few, you may deduct Social security and Medicare taxes on Wages included in Household income. Also, there is a deduction for Self-employment taxes paid. You may also deduct Child support paid (proof of payment is necessary).

The following deductions originate from your Federal 1040 lines 23 through 35 or 1040a and are the only deductions available, Business expenses for reservists, Alimony paid, Tuition and fees paid, Self-employment health deduction and Health savings deduction.


I contributed money to an IRA account can I deduct this from Household income?

No you may not, this deduction was removed from Household income in 2009.


What if I had someone living with me, do I include their income?

Yes, you would include their income for the time they spent in the Household, if they lived with you the whole year you would include all their income, if it was one quarter of the year you would take 25% and add that to Household income.


What if the sum of my Taxable interest and dividends and Non-Taxable interest exceed $10,000?

If you were born after January 1, 1950, you would take that sum and subtract it from $10,000 and include that difference as an addition to Household income.


What if an income figure from my Federal 1040/ 1040A is negative?

The short answer is that there is not a deduction for Household income. Though, depending on the Line item sometimes you need to take a look at its composition.


I have several small businesses that I record on different Schedule C’s how do I report their income?

This is a great question. For Household income purposes you take a look at each business and include only those that show a net profit for Household income purpose. You do not get a deduction for those businesses that show a loss.


What if I used my tuition and fees I paid to get the federal education tax credit can I also deduct it from household income?

No, you may not, since it was not included on your Federal 1040 as a deduction from income you may not use that figure as a deduction for Household income.


I have Medicaid premiums deducted from my social security I receive can I deduct these premiums from household income?

No, you may not.

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