The Arizona Department of Revenue (ADOR) has the power to conduct audits on businesses in the state. This includes Transaction Privilege Tax (TPT) Field Audits.

That a business is selected for an audit doesn't mean the ADOR is singling out a business or has found mistakes in their tax forms. The state has the right to inspect a taxpayer's records to check that they're paying the correct amount of tax.

In Arizona, audits usually occur within four years. The exception is if a business fails to file tax returns, in which case audits may extend beyond the most recent four years.

Audits don't automatically result in a business having to pay more tax. Some audits may find that a business overpaid their taxes, entitling them to a refund. At other times, an audit may find that a business properly filed and paid its taxes.

How an Audit Occurs

TPT Field Audits generally follow these steps:

·        An auditor will contact a business and notify them of the ADOR's intent to audit them. Once the auditor and business agree on when and where to meet, the auditor will send the business an Intent to Audit Letter.

·        The auditor will meet with the business owner or authorized representative (generally the person who handles accounting and tax issues) for an opening interview. These meetings generally involve questions about the business's accounting practices and may also involve a tour of the business's offices or facilities. A business may have an accountant or tax attorney present during this meeting.

·        Next, the auditor will examine the business's records, both paper and electronic. These reviews generally cover accounting and tax records as well as documents involving income, exemptions and deductions, and purchases.

o   In some cases, an auditor may “sample” documents, meaning they don't review everything but a random cross-section of documents.

o   An auditor will likely check if the business properly claimed exemptions and documented exempt transactions.

o   Taxpayers have a reasonable period of time to locate and turn over documents to an auditor. If a taxpayer fails to produce documents, the auditor may send a written request via certified mail. If this is unsuccessful, the ADOR may subpoena the business for the requested records.

·        Following the examination, the auditor will meet with the business to review the audit transaction detail schedule. The auditor should highlight any recommended changes to the business's transactions.

·        The final step is the Audit Closing Conference. During this meeting, the auditor will summarize their findings and any proposed adjustments.

Call an Experienced Tax Attorney

If you have questions about TPT Field Audits, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.