Part 2 Common Pitfalls
There are several issues that often surface during the audit. Many of the issues that surface are that the client does not have records, the client does not have a complete or updated QuickBooks or accounting software file, or the client has collected and remitted the incorrect amount of tax.
The most common issue we face is the situation in which the Florida taxpayer does not have adequate records to do a complete audit. Based on many of our clients, Florida is an extremely dangerous place to live. Until I became a Florida sales and use tax attorney, I was not aware of the high number of floods, fires, earthquakes, tsunamis and other natural disasters that destroy all of a business’s records. On a serious note, many taxpayers believe that not having any records is the best way to escape tax liability. However, generally the opposite is true. The more records that are available, generally, the more we can do to explain discrepancies that arise during the audit. Therefore, we recommend that a Taxpayer does its very best to salvage as many records as possible for review even if they are extremely damaged due to mother nature.
Another issues that regularly rears its head is whether the business has to turn over its QuickBooks or accounting software file. Contrary to the auditor’s reading of the statute, there is no requirement that I am aware of that requires a taxpayer to keep computer records. Further, if there is some type of computer recordkeeping being used, then the records are not always reconciled to the tax return or even used to generate the tax returns. Many small, medium, and large businesses in Florida and throughout the country use accounting software to generate invoices and print checks, nothing more. Florida law only requires that a business turn over its books and records and if the accounting software is not the books and records of the company, then it need not be turned over to the auditor. Turning over a QuickBooks file that is incomplete often can be costly as businesses are asked to explain unexplainable journal entries that just do not make any sense.
The last major issue that we see regularly is that a business has accounting errors or collected tax and did not remit it. First and foremost, it is extremely common that an audit will turn up errors of a company. Most audits result in some tax liability and it is nothing new from the auditor’s perspective to find errors. Therefore, with the help of an experienced Florida sales and use tax attorney, the liability can often be mitigated, but having small discrepancies is nothing to fret about. A larger problem, although not a death blow, is if a business collects tax and does not remit it. While it is a criminal offense to do so, if a company just made a mistake, this issue is often resolved on audit by just paying the liability.
About the author: Jerry Donnini is a multi-state sales and use tax attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA, based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, native American taxation, federal estate planning, and Florida probate. Mr. Donnini is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact him via email JerryDonnini@Floridasalestax.com or phone at 954-642-9390.