Representing Clients Before the DOR and in State Tax Litigation

If you get a letter from the Department of Revenue saying they want to check your records, don’t panic. If they find a problem, you’ll get another letter with their proposed changes. You can disagree with their findings and file a protest. If you don’t, the changes become final and you can take the case to court. If you do file a protest, you’ll get a decision that you can accept or reject. If you reject it, you can ask them to reconsider or take the case to court. The Department of Revenue can audit businesses for various reasons, and they must send a notice before starting the audit. The notice extends the time the department has to complete the audit. The business must provide the department with the books and records they request, or the department may estimate the taxes owed. If the records are voluminous, the department may use statistical sampling to review them. We are sending you a Notice of Intent to Make Audit Changes, along with the auditor’s workpapers that support the figures in the notice. You have 30 days to review the notice and meet with us to resolve any issues before we issue a Notice of Proposed Assessment. If you disagree with the proposed assessment, you can protest it through the DOR’s informal protest procedures. After the tax assessment is issued, the taxpayer has 60 days to protest it. If they don’t, the assessment becomes final and they have 60 days to either file a complaint in court or a petition. If they miss this deadline, they lose the right to appeal, but the DOR can still consider requests for relief. The DOR can compromise assessments using three different theories. In the past, the DOR usually sided with their own assessment in disputes, but now they are starting to be more flexible in settling disagreements. However, there are still some limits on how much they can compromise. Many of the people making decisions in these disputes used to be auditors themselves, so they tend to support their old team. And there are rules that limit how much money they can compromise without higher approval. In some cases, people involved in settling disputes for the Department of Revenue (DOR) may get guidance from the DOR’s general counsel on how to resolve certain issues where there’s uncertainty about who is responsible. For example, the general counsel might decide that the people involved should compromise on an issue by a certain percentage, like 50%, to avoid going to court. This compromise policy might be because of a previous settlement in a similar case being disputed by other taxpayers. The DOR also has a policy for when there’s doubt about who is responsible for a tax. The policy says that doubt is indicated when there’s conflicting information in the law and the taxpayer has tried their best to follow the rules. It also says that if a taxpayer got written advice from the DOR and followed it, that can also be a reason for doubt about their responsibility. If someone wants to compromise on a doubt about responsibility in the DOR’s informal dispute process, they should use one of these reasons as evidence of their doubt about responsibility. If the government’s assessment of taxes is clearly wrong, it can be revised to fix the mistake. This can happen even after a protest has been filed, so tax representatives should be on the lookout for potential reductions in the assessment that are not in line with the law. The dispute resolution process may not always be the best way to resolve disagreements about whether the taxes are owed, but it can be helpful for settling assessments based on whether the taxes can actually be collected and penalties based on reasonable causes. The Department of Revenue can compromise on assessments if they have doubts about whether the taxes can be collected. I was a lawyer for the Department of Revenue and helped figure out how much of a tax bill they could lower if the person couldn’t afford to pay it all. We looked at the person’s finances and if they had enough money or could make a payment plan, we didn’t lower the bill. But if they couldn’t pay it all, we would lower the bill and maybe set up a payment plan. We also considered if the person could get money from other places to pay the bill. The state tax department may offer a compromise if a taxpayer can’t afford to pay their full tax bill. It’s important for the taxpayer to show their true financial situation, including any assets that may not be worth as much as they seem, and justify their spending. The tax department will closely examine the taxpayer’s expenses, so it’s important for the taxpayer to be honest about their financial situation. The tax department will have experts who know how to analyze financial statements, so it’s important for the taxpayer to be prepared for questions about their finances. If you’ve been penalized by the Department of Revenue for not paying taxes on time, you may be able to compromise and reduce the penalty if you can show that you had a good reason for not paying on time. The Department will consider factors like whether you’ve been audited before and how much you owe. There are also 12 reasons that can support your request for a penalty compromise. For example, if you voluntarily tell the Department about what you owe before they contact you, they will presume that you had a good reason for not paying on time. The taxpayer’s representative needs to know the specific rules the Department of Revenue (DOR) considers when determining the amount of tax, penalty, or interest to compromise. If the DOR’s dispute resolution process doesn’t work, the taxpayer may need to go to court to challenge the decision. When a tax issue goes to court, the DOR considers more factors before deciding on a settlement. They also have limited resources for litigation, so they carefully choose which cases to pursue. Right now, the DOR has about 200 to 300 cases in different stages of litigation, and they have a small team of attorneys working on them. About 30% of these cases are settled before a judge or hearing officer makes a decision, and this number has been going down as more cases are settled through the DOR’s own dispute resolution process. Representation of clients with state tax issues is a complex process that requires deep knowledge of procedural and substantive issues. It is important for representatives to be aware of how the Department of Revenue resolves similar issues and whether the issue is one of first impression. This knowledge is necessary to provide the best representation for the client. For those interested in this area of practice, proceed with caution.

Source: https://www.floridabar.org/the-florida-bar-journal/representing-clients-before-the-dor-and-in-state-tax-litigation/