Your Rights and Responsibilities in an Audit
We routinely audit tax returns and business tax records to ensure compliance with Virginia law. The selection of your return or account for audit does not mean you will owe additional tax; audits frequently conclude with no additional liability found, or a refund to the taxpayer. Many examinations conducted by the Department do not require a visit to your home or business. Questions concerning your returns can sometimes be resolved by telephone or letter.
The Virginia Taxpayer Bill of Rights grants every taxpayer specific rights during an audit. This section explains those rights, describes the audit process, and explains how you may exercise your rights if you are audited.
You have the right to:
- Be informed of the audit process, the audit procedures and appeal rights if selected for an audit.
- Have the audit conducted at a reasonable place and time, and completed in a timely manner.
- Be provided with an explanation of any changes made during an audit.
Many examinations of returns are conducted by mail. Typically an examiner will write to you to request additional information about items on your return, or to notify you of errors that need to be adjusted. You will have the opportunity to respond to a notice before a bill is issued.
Certain governmental agencies furnish the Department information concerning taxpayers' returns. The largest source of such information is the Internal Revenue Service, but information may also be gathered from other federal, state and local agencies. Information furnished by these sources is compared with Virginia tax returns to identify taxpayers who may have underpaid their Virginia tax liabilities or failed to file a return. All information received from other agencies, as well as information already in our files, is kept strictly confidential.
If we find a discrepancy in your tax return, we will send you a letter to:
- Identify the nature of the problem and explain possible changes in your liability;
- Invite you to provide additional information or explain why you disagree with these changes;
- Give you a date by which you should respond;
- Give you the name and telephone number of the Department employee who is responsible for your case.
If you do not respond to the inquiry letter, or if you are unable to demonstrate that you do not owe additional tax, we will bill you for the additional tax, as well as applicable penalty and interest.
An auditor will notify you by phone or letter if your return or account is selected for an onsite audit. The auditor will describe the types of records that need to be made available, and will explain the planned audit method and procedures.
Field audits are conducted by in-state auditors or by interstate auditors (located outside of Virginia).
We will notify you if you are selected for a field audit:
- Arrangements for audits are made in advance, either by letter or by telephone.
- Audit appointments are made with the owner or corporate officer responsible for tax compliance. The auditor may work with anyone designated by the taxpayer.
- Audit appointments will include the day, time and place of the appointment.
- Audits are usually conducted at your place of business during normal work hours. In every case, we will work with you to minimize the impact of the audit on your schedule or your business operations.
- You will be advised of the general type of records needed to start the audit.
Before the audit, the auditor will do the following:
- Provide you with a copy of the Virginia Taxpayer Bill of Rights and answer any questions you may have regarding your rights.
- Discuss the operation of your business, ask how your records are maintained, and ask you to identify other issues which may affect the audit.
- Discuss the specific audit process to be used.
- Tour your place of business, if necessary.
- Determine how your records will be reviewed.
- Determine the method in which the audit will be conducted. The method the auditor chooses will depend on a number of factors, such as the type of tax, the accuracy and availability of records and the size and complexity of your business. We may conduct a detailed audit, which involves looking at all of your records, or we may look at a sample or portion of your records.
While conducting the audit, the auditor will do the following:
- Determine the audit period. Audits are usually conducted for a three-year period, but may be expanded up to six years if returns are not filed when required.
- Review your records and the returns you have filed.
- If necessary, ask you to voluntarily waive the statute of limitations on the audit period. This is usually done if additional time is needed to conduct the audit. In addition, it can prevent issuing an assessment on unresolved factual issues that may be resolved through the audit process or informal review.
- Explain departmental policy and its application to your business transactions.
- Allow you adequate time to respond to our questions.
In concluding an audit we will do the following:
- Discuss our findings with you, or send you a letter explaining any changes.
- Explain any penalties to be billed.
- Discuss future filing responsibilities and answer any questions you have concerning the audit.
- Provide you with a copy of the audit report identifying issues to be corrected for future compliance as necessary.
- Explain your rights to appeal should you disagree with the audit findings.
If our income tax audit raises an issue that affects your federal income tax, we may notify the Internal Revenue Service and will not create a bill until the issue is resolved at the federal level. If this procedure is used it will be discussed with you by the Audit Supervisor.