Audit Procedures—

A routine audit of your business records is scheduled. An auditor will contact you to set a mutually agreeable time and date to begin the audit. We audit many taxpayers, so please do not feel that we have singled out your account for audit.

Most tax returns are accepted as filed. Some returns are chosen for audit by a random computer search. When your return is chosen for audit, it does not suggest that your return is incorrect or reflect on you personally.

If your income tax return is chosen for audit, we may ask you to verify some information. This is usually done through the mail or on the telephone. A personal interview is usually not necessary.

If your business tax return and records are selected for audit, and an interview or visit to your business is required, you have the right to:

• ask that the audit take place at a reasonable time in a convenient location;

• represent yourself, have someone accompany you or, with authorization, have a third party represent you in your absence;

• receive copies of the audit work papers that show how the auditor determined any changes to your taxes;

• meet with the auditor to discuss the report;

• meet with the auditor’s supervisor to discuss any tax changes with which you disagree.

The law authorizes the examination of the books and records of a business to determine if the correct tax was reported and paid. Our auditors are professionals, familiar with the application of Michigan tax law in your business environment. The auditor assigned to your audit will conduct a fair and impartial examination of your records. While the audit is in progress, the auditor will answer any questions that may arise. When the audit is finished, the auditor will explain the audit findings and the alternatives available to you if you disagree with the audit results.

Examination of Records—

To perform an audit, the auditor must examine certain records. These may include, but are not limited to:

Sales invoices
Purchase invoices for supplies
Capital asset invoices and journals
Resale and exemption certificates
General ledgers, subsidiary ledgers and journals and supporting books and records
Tax returns
Bank statements
Working papers and accounting data used to prepare tax returns
Computer and EDP records.

The size and complexity of a business determines the scope of the audit and what records will be examined during the audit. As a result, the law requires you to furnish all records requested by the auditor that are necessary for performing a fair and impartial audit.

Generally the auditor’s first step is to review the accounting, tax accrual and reporting systems and evaluate the internal controls within each. If tax errors are identified either of two types of audit can be performed.

Detailed audit: The auditor will examine all business records for the entire audit period.

Sample audit: The auditor will use sampling methods. Errors found in representative samples of business records are projected over the entire audit period. Sampling provides accurate results with significant savings of time and manpower for the state and you the taxpayer.

In either method, if the records are inadequate the audit is based on the best information available.

Our auditors have various audit tools available, including computers. In addition to using traditional hard-copy records, our auditors employ methods that use electronic or computer-readable data files. In some mutually agreeable situations the audit software may even be run on your computer. Using records in computer-readable form is accurate and generally results in reduced audit time.

Statute of Limitations—

Generally, the statute of limitations is four years for the taxes administered by the Michigan Department of Treasury. An audit normally covers the most recent four-year period. However, tax may be assessed for any period if a return was not filed.