MSCPA Meets With MDOR on Members’ Issues Including Schedule C Verifications
By: David Lynch, MSCPA Taxation Committee Co-Chair
Members of the Taxation Committee and President/CEO Karen Moody held a phone conference with Commissioner Graham and Jan Craig to discuss some of the concerns raised on our CONNECT forum. Much of the information and concerns raised on CONNECT were relayed in our call and we particularly tried to address the onerous requests being made by MDOR through “verifications.” I would like to add that I was particularly concerned about MDOR representatives claiming the “verifications” are not examinations and what that could ultimately mean relative to things like appeal rights, the MDOR’s requirements to timely complete an exam, and whether a particular item could be examined/audited again if MDOR so chooses. We were given some helpful information on our call that I hope will help you resolve issues with any verifications you may now be dealing with or may receive in the future. A summary of our discussion is below:
Schedule C Verifications
- MDOR has advised a verification is indeed an examination of the items being verified. To the extent an item or items are changed, the taxpayer will receive an assessment letter which triggers the normal rights to appeal to Board of Review and ultimately the Board of Tax Appeals. If no items are changed, the MDOR should issue a timely no change notice closing the examination. We have asked MDOR if they would indicate on the initiating letter with the taxpayer that the verification is indeed an examination and they have taken our request under consideration.
- It is our understanding that if an item is examined through the verification process, it is not able to be examined again for income tax purposes. MDOR has taken the position that if there is a subsequent sales tax audit of a business that indicates an income tax assessment may be necessary that the previously examined item could be subject to change. However, we disagreed with the MDOR on this position on our call and will continue to advocate with MDOR to reconsider their position. MDOR did indicate they believed this to be an unlikely scenario, however, it is our understanding some of our members have already faced this issue.
- With regards to the onerous document requests, MDOR has advised that they have spoken with their auditors and requested that they work harder to reduce the amount of documents requested and more narrowly tailor such requests to the specific tax items in question. In instances where you feel a document request you receive is particularly onerous, MDOR recommended you contact the auditor to request they narrow the scope of the request. Additionally, MDOR has advised that an initial extension should be granted in every case.
- We relayed to MDOR our concern that a request for “all documentation supporting a Schedule C” via mail was not a reasonable request and not consistent with the statute requiring taxpayers to make their documents and records available at a reasonable time and place. We have asked MDOR if they would consider allowing taxpayers to elect a field examination in these instance, and they have advised they will look at alternative methods such as electronic records or requesting a narrower list of times to review, but that they would not consider allowing for an opting into a field examination. We will continue to advocate for all forms of examination, including verifications, to be conducted at a reasonable time and place for our members and their clients consistent with the statutes requiring same.
We have also relayed the numerous concerns raised about some auditors’ apparent lack of knowledge of MS tax laws. MDOR has recommended that practitioners contact the manager of the auditor to try to resolve the issue.
In the event you find you are unable to resolve a tax issue, please email Tax Assist at email@example.com. Questions to the Tax Assist service are addressed by someone at MDOR with the title of Bureau Director or higher, and most inquiries are responded to within 48 hours. I would very much encourage practitioners to take advantage of the Tax Assist email service if you find yourself dealing with a difficult situation.
The summary above has been reviewed by MDOR to ensure accuracy and completeness. In addition to the above, I have also been asked to relay that MDOR received 1.2 million returns last year and sent 9,745 letters requesting verification for Scheduled C information, which is less than 1% of the total returns filed. I believe MDOR would like to convey that despite how onerous dealing with a single verification may be, they are trying to limit the number of verification letters they send and will continue to make efforts to more narrowly tailor their information requests to reduce the burden on taxpayers and their representatives.
I know some of these answers are not completely satisfactory, but please know that we will continue to advocate on our members behalf to help alleviate the additional burdens being placed on you as a result of these verifications and examinations. The Taxation Committee will be starting to meet with MDOR on a quarterly basis going forward. To the extent you have any additional concerns related to this issue or other issues with MDOR, please share them on the CONNECT Forum or send them to me directly at firstname.lastname@example.org.