crowe horwath pullman & coml pullman &...

Presenting a live 110‐minute teleconference with interactive Q&A

Business Personal Property Audits: Preparation Strategies for TaxpayersPreparation Strategies for TaxpayersPlanning for and Responding to Disputes Over Documentation, Values and Assessments, Penalties and More

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, AUGUST 8, 2012

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

Jeff Mills, Senior Manager of Property Tax, Crowe Horwath, Dallas, g p y , ,

Gregory Servodidio, Member, Pullman & Comley, Hartford, Conn.

Laura Bellotti Cardillo, Member, Pullman & Comley, Hartford, Conn.

For this program, attendees must listen to the audio over the telephone.

Please refer to the instructions emailed to the registrant for the dial-in information.Attendees can still view the presentation slides online. If you have any questions, pleasecontact Customer Service at1-800-926-7926 ext. 10.

Conference Materials

If you have not printed the conference materials for this program, please complete the following steps:

• Click on the + sign next to “Conference Materials” in the middle of the left-hand column on your screen hand column on your screen.

• Click on the tab labeled “Handouts” that appears, and there you will see a PDF of the slides for today's program.

• Double click on the PDF and a separate page will open. Double click on the PDF and a separate page will open.

• Print the slides by clicking on the printer icon.

Continuing Education Credits FOR LIVE EVENT ONLY

Attendees must listen to the audio over the telephone. Attendees can still view the presentation slides online but there is no online audio for this program.

Attendees must stay on the line for at least 100 minutes in order to qualify for a full 2 credits of CPE. Attendance is monitored as required by NASBA.

Please refer to the instructions emailed to the registrant for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.at 1 800 926 7926 ext. 10.

Tips for Optimal Quality

S d Q litSound Quality

For this program, you must listen via the telephone by dialing 1-866-873-1442and entering your PIN when prompted. There will be no sound over the web connection.co ect o .

If you dialed in and have any difficulties during the call, press *0 for assistance. You may also send us a chat or e-mail [email protected] immediately so we can address the problem.

Viewing QualityTo maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key againpress the F11 key again.

Business Personal Property Audits: P ti St t i f T Preparation Strategies for Taxpayers Seminar

Aug. 8, 2012

Gregory F. Servodidio, Pullman & [email protected]

Jeff Mills, Crowe [email protected]

Laura Bellotti Cardillo, Pullman & Comley [email protected]

Today’s Program

B kg d I With St t L l P l P t A dit Slid 7 Slid 24Background Issues With State, Local Personal Property Audits[Jeff Mills]

Special Documentation Issues With Personal Property Audits[G F S didi ]

Slide 7 – Slide 24

Slide 25 – Slide 28[Gregory F. Servodidio]

Negotiating Valuations And Assessments[Laura Bellotti Cardillo]


Rights Of The Auditor[Gregory F. Servodidio]


Negotiating Penalties And Interest[Laura Bellotti Cardillo]

U d t di Ri ht A d A l A


Slid 40 Slid 42Understanding Rights And Appeals Avenues[Laura Bellotti Cardillo]


BACKGROUND ISSUES WITH Jeff Mills, Crowe Horwath

BACKGROUND ISSUES WITH STATE, LOCAL PERSONAL PROPERTY AUDITS

The Unique Alternative to the Big Four®

© 2011 Crowe Horwath LLP 8Audit | Tax | Advisory | Risk | Performance


Background:A. Increase in business personal property tax audits Increased revenue source Is your business at risk?

B. Audit states/jurisdictions Notorious audit states States becoming more aggressive Mandatory audit states

C. Third-party audit Firms and terms Companies pursued Audit focus

D. Audit timing Cycle/commencement


What actions need to be undertaken by the jurisdiction?


Increase In Business PersonalIncrease In Business Personal Property Audits



Increase In Business Personal Property Tax Auditsp y

Increased revenue source

Overall budget shortfalls

Hiring of “third-party audit firms” vs. hiring additional resourcesg p y g

Decreased assessments, lack of capital spend



Increase In Business PersonalProperty Tax Audits (Cont.)

Is your business at risk?

New accounts New accounts

Multiple accounts in one jurisdiction

Significant value

Large increase/decrease in value from prior year to current Large increase/decrease in value from prior year to current

Failure to file


Random selection


Audit States/JurisdictionsAudit States/Jurisdictions



Audit States/Jurisdictions Audit states

Alabama Arizona California Colorado Colorado Connecticut Florida Georgia Indiana Indiana Kentucky Louisiana Michigan North Carolina Tennessee Utah Washington


West Virginia Wyoming


Audit States/Jurisdictions (Cont.) States becoming more aggressive

California Connecticut Florida Georgia Kentucky Kentucky North Carolina *Oklahoma Tennessee *Texas (non-audit state, per Tax Code) Utah


* States becoming more aggressive and have current contracts with third-party auditors


Third Party AuditThird-Party Audit



Third-Party Audit Firms and termsFirms and terms

Most commonly hired by a jurisdiction to perform personal property or “special projects” on behalf of the jurisdictionspecial projects on behalf of the jurisdiction.

Typically very aggressive and paid on a “contingency fee” arrangement for “found revenue”Firms Firms Most notable “third-party” audit firm located in North Carolina Other local/regional firms that perform audit outsourcing services Third-party appraisal firms



Third-Party Audit (Cont.)C i d Companies pursued

Accounts with large market/assessed values

Companies having multiple locations in a particular jurisdiction

Returns filed with drastic value differences from prior year

New company

C i f ili t fil t Companies failing to file a return

Mergers and acquisitions (many states do not accept purchase price allocation or asset appraisals, but rather historical cost)


pp , )

High-profile


Third-Party Audit (Cont.)A dit f Audit focus

Expensed assets (computers, furniture, office equipment)

Taxable software

Adjustments for intangibles

Assets reported on prior year returns and removed on current year

J i di ti l t d diff tl f h j i di ti Jurisdictional nuances – assets assessed differently from each jurisdiction

Assets not reported


Real vs. personal


Third-Party Audit (Cont.) SEC prohibits contingency fee auditors: On May 21, 2004, U.S. Securities and Exchange CommissionSEC prohibits contingency fee auditors: On May 21, 2004, U.S. Securities and Exchange Commission

(SEC) issued a letter clarifying the SEC's position that the receipt by an accounting firm of a contingent fee from an audit client impairs the auditor’s independence with respect to that client. Accordingly, the SEC concluded that the use of contingent fees in tax matters for audit clients is prohibited.

The American Institute of CPAs’ Standards and Code of Professional Conduct prohibits performance of an audit that reviews financial statements to be paid on a contingent-fee basis. (Rule 302)

A National Conference of State Legislatures (NCSL) task force has passed a resolution calling on governments to end the use of contingent-fee arrangements. The resolution is awaiting full NCSL consideration in 2012. Excerpt: WHEREAS b t ti ith thi d ti t d t t dit ti t f b i WHEREAS, by contracting with third parties to conduct taxpayer audits on a contingent fee basis, governments may provide an incentive to the third-party auditor to arbitrarily inflate a taxpayer’s liability because a larger audit assessment results in a larger payment to the auditor; and

WHEREAS, contingent fee arrangements may encourage auditors to be overly aggressive, to interpret tax statutes to their own monetary advantage rather than in a fair and just manner to “cherry pick” taxpayersstatutes to their own monetary advantage rather than in a fair and just manner, to cherry pick taxpayers as audit targets and to ignore taxpayer errors that would result in lower assessments; and

• An Alabama class-action suit has been brought against a private audit firm (AlaTax), alleging a number of Alabama Taxpayer Bill of Rights violations including the fact that the firm is paid on a contingency-fee basis.


Cited From The Michigan Chamber of Commerce (http://www.michamber.com/files/michamber.com/bounty%20hunter%20auditors%20TPoints%20FULL%20VERSION%204.pdf)


Third-Party Audit (Cont.)

State auditState audit

N/A

Third/state


Third/state

Non-audit


Third-Party Audit (Cont.)State Completed Audits Discovery Percentage Discovered ValueState Completed Audits Discovery Percentage Discovered Value

ALABAMA 3,117.00 38% $1,884,654,880.00

CALIFORNIA 118.00 55% $76,999,399.00

CONNECTICUT 2,990.00 49% $530,556,293.00, $ , ,

FLORIDA 426.00 60% $451,712,917.00

GEORGIA 11,214.00 40% $3,383,929,575.00

INDIANA 25,137.00 31% $1,612,122,982.00

KENTUCKY 167.00 86% $1,590,630,116.00

MICHIGAN 12,967.00 42% $3,977,032,750.00

MISSISSIPPI 24.00 62% $46,300,353.00

NEVADA 42.00 66% $43,620,100.00

NORTH CAROLINA 46,205.00 31% $16,455,852,025.00

OKLAHOMA 2.00 100% $10,000,001.00


TENNESSEE 50,175.00 42% $6,783,621,179.00

Totals 152,584.00 37% $36,847,032,570.00


Audit TimingAudit Timing



Audit Timing Commencement and actions undertaken by the auditor Varies state by state: Not all states have an audit cycle. In many states,

the audit cycle is not defined and/or prohibited. Typically sent a letter via certified mail, mandating a request for

information within a specific time frame. Letter will typically define the process, statute or regulation granting authority to perform the audit, timing and contact information.

States having an audit cycle will typically request a “visit” to the site at which the asset records are situated.

Additional follow-up letters/requests may occur, based on the information provided and/or site inspection.

Audit determination produced with a stated period of time to


protest/challenge the audit findings

SPECIAL DOCUMENTATION Gregory F. Servodidio, Pullman & Comley

SPECIAL DOCUMENTATION ISSUES WITH PERSONAL PROPERTY AUDITS

Special Documentation IssuesIssues

A. What information typically needs to be produced, and how

1. Typically geared to the acquisition cost andclassification of taxable assets, to include:

a. Federal tax returns or excerptsb. Fixed asset schedulesc General ledgersc. General ledgersd. Balance sheets

26

Special Documentation pIssues (Cont.)e Disbursement ledgerse. Disbursement ledgersf. Depreciation schedulesg. Capitalization policyh. Inventoriesi. Invoicesj B ildi l h ld l dj. Building or leasehold ledgers

27

Special Documentation I (C t )Issues (Cont.)

2 Information sought will be specified in the audit2. Information sought will be specified in the auditnotice.

3. Determine if audit statutes place any limitationson what can be requested

4. Method of production often specified by auditor,but can be negotiated if impractical forg ptaxpayer

28

NEGOTIATING VALUATIONS Laura Bellotti Cardillo, Pullman & Comley

AND ASSESSMENTS

Negotiating Valuations And AssessmentsAnd Assessments

A. Types of assets identified and included in the audit

1. Leasehold improvements

2. Non-taxable assets

3 Capitalized intangible items3. Capitalized intangible items

30

Negotiating Valuations And Assessments (Cont )Assessments (Cont.)

B. Assets transferred to other categories/schedules

1. Reclassification of assets to slower depreciation schedule

2. Disparate treatment

31

Negotiating Valuations And Assessments (Cont )Assessments (Cont.)

C. Change in assessment methodology

- Not permitted in some jurisdictions

32

RIGHTS OF THE AUDITORGregory F. Servodidio, Pullman & Comley

Rights Of The Auditorg

A. Typically, the parameters of state audit powers inbusiness personal property

1. Who can conduct the audit – governmentemployee vs. government contractor

a. CPAb. Certified auditor/audit firmc. Assessor

34

Rights Of The Auditor (Cont.)g ( )

2 Time limits for commencement and conclusion of audit2. Time limits for commencement and conclusion of audit

3. Limitations on information/documentation that can berequestedrequested

4. Right to physical inspection

5 Taxpayer’s right to be heard5. Taxpayer s right to be heard

6. Taxpayer’s right to respond to preliminary audit resultsbefore finalized

35

Rights Of The Auditor (Cont.)g ( )

B What to expect from contingent fee audit firmsB. What to expect from contingent fee audit firms

1. Ascertain any statutory/regulatory/common lawlimitations on contingent fee auditing/auditorslimitations on contingent fee auditing/auditors

2. Need to obtain contract from the audit firm andinspect it before audit beginsg

a. Understand financial incentives of auditor

b. Understand where final approval of auditfindings resides

36

NEGOTIATING PENALTIES Laura Bellotti Cardillo, Pullman & Comley

AND INTEREST

Negotiating Penalties And InterestPenalties And Interest

A. Verify auditor’s authority to impose penalties

1. Penalty imposed on assessment increase resulting from discovered/under-reported assets

i. Shift from one depreciation schedule to another may not trigger a penalty

38

Negotiating Penalties And Interest (Cont )Interest (Cont.)

B. When does interest begin to run?

1. From the date of the original tax bill/ assessment date

2. As of the date the audit results are finalized

C. Statutory rate of interest

39

UNDERSTANDING RIGHTS Laura Bellotti Cardillo, Pullman & Comley

AND APPEALS AVENUES

Understanding Rights AndAppeals AvenuesAppeals Avenues

A. Opportunity to meet with auditor/assessor post-audit

B. Formal appeal process

1 H i ith l l t b d1. Hearing with local assessment board

41

Understanding Rights AndAppeals Avenues (Cont )Appeals Avenues (Cont.)

2. Appeal to tax tribunal/superior court

i. Informal negotiation with taxing authority

iii P t i l li i h iiii. Pre-trial or preliminary hearing

iv. Trial/formal hearingg

42

crowe horwath pullman & coml pullman &...

Documents