Requesting an Independent Audit Review Conference (IARC) to Stop an Incorrect Texas Comptroller State Tax Audit from being Billed

Imagine this uncomfortable scenario. Your business is under audit by the Texas Comptroller’s Office. It is the last day of the Field Audit and you are meeting with the auditor at the Exit Conference. The auditor then hands you a tax bill for an amount that you disagree with. What do you do now? What rights do you have?

Dino Marcaccio, President Former Texas Comptroller State Tax Auditor, 16 Years

Dino Marcaccio, President
Former Texas Comptroller State Tax Auditor, 16 Years

How to Challenge an Auditor’s Findings

If you disagree with transactions your auditor has determined to be taxable, then it is best to deal with the issues as they come up. In other words, don’t wait until the end of the audit.

Officially, you have two options for addressing your disputes before your audit has been billed. The first option is called a Reconciliation Conference. This resolution process is judged by the audit manager or supervisor.

The second option is called an Independent Audit Review Conference (IARC). An IARC allows businesses to address their disputes with an ‘unbiased’ third party called the Independent Audit Reviewer (IAR). Although the IAR does not work directly for a Comptroller office that conducts audits, they still work for the Comptroller.

Both of these options have their place. However, if you are at the end of the audit, I would suggest going straight to an IARC.

When to Request an Independent Audit Review Conference (IARC)

Each year I hear from dozens of businesses who received over-stated final tax bills that were never told about the IARC at the Exit Conference. Some businesses weren’t even provided the Contesting Disagreed Audits brochure. In rare cases, auditors simply turned the audit in for billing and then claimed the business owner declined the IARC option.

So although the Contesting Disagreed Audits brochure states that a business may request an IARC at the Exit Conference, I would suggest you make your request sooner if needed.   For instance, you could RESERVE your right to an IARC any time during the field audit phase if you get an uneasy feeling for whatever reason.  Also, do not feel like you are going to upset your auditor. The bottom line is that you MUST not lose your opportunity to request an IARC since this is your last chance to correct the audit before it is billed and you are forced into the complex and costly Administrative Hearings process where businesses lose almost 90% of the decisions.

We manage approximately 300 state tax audits per year and our policy is to always reserve our IARC rights in writing early in the audit process.

How to Request an Independent Audit Review Conference (IARC)

Requesting an IARC is actually very easy. Simply send an email (delivery confirmed) to both your auditor and his/her supervisor as follows…

Email Subject Line:  

Request to Reserve My Right to an Independent Audit Review Conference (IARC)

Email Body:

Please accept this email as a request to reserve my right to an Independent Audit Review Conference if all audit assessments have not agreed to in writing.

Can I be denied an Independent Audit Review Conference?

Once you have requested an IARC, you will be asked by the auditor to send him/her a list of your arguments (i.e., contentions), supporting tax research and documentary evidence to support your claim. The auditor’s supervisor will then examine what you have submitted to determine whether you qualify for an IARC.

In my opinion the only time someone can be denied an IARC was if they failed to provide any records for the audit. This is clearly stated in the ‘Contesting Disagreed Audits’ brochure.  However, I have often seen auditors and supervisors attempt to wrongfully deny an IARC for various reasons. So be ready to stand your ground.

Note, most auditors don’t want to get involved in an IARC because the agency carefully monitors how long each audit takes and can actually punish auditors and supervisors for letting an audit take too long to complete. In addition, auditors are often ranked in the order of how much tax they assess on a yearly basis (yes, this does happen).

A Redetermination Hearing Should Be Your Last Resort

After a final tax bill has been issued, your only option to address disputes is to request a Redetermination Hearing, also called an Administrative Hearing. Unfortunately, this is a very time consuming, complex and risky process. The entire Hearings process can take up to a year or longer to complete.This process is outlined in the Texas Comptroller document called The Rules of Practice & Procedure.

If the Comptroller accepts your Statement of Grounds and lets you into the Hearings Process, you will then be given 60 days to work out your issues with the auditor. If you can’t come to terms with the auditor, then your case will be assigned to a normally aggressive Comptroller Hearings Attorney. This is when things really get tough.

Texas Tax Group has been involved in 100s Texas Comptroller Administrative Hearings over the last 9 years. Our experience tells us that you will lose unless you have overwhelming evidence to support your case. In fact, business owners lose around 90% of the Administrative Hearings. Based on this statistic alone, it should be obvious that the Administrative Hearings process is very much stacked in favor of the Comptroller’ Office.

An IARC Is Your Last Good Chance to Get Your Audit Done Right

If you have an issue you disagree with, I recommend that you let Texas Tax Group represent you in this difficult process.  Please contact us if your audit is going in the wrong direction and we can discuss your particular case.

 

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