Returns are selected for audit for a number of reasons. Most audits are based on information provided on a tax return or from our extensive exchange of data with the Internal Revenue Service and other state and local agencies. In some instances, audits are based on information obtained from another taxpayer's return. DOR also may look at a random selection of returns to see whether there are consistent filing problems or issues that need to be addressed.
All information received from other agencies, as well as information already in our files, is always kept strictly confidential.
Typically, an audit is initiated when a tax examiner sends a notice to you requesting additional information about an item, or items, on your return, or to notify you of an error that needs to be adjusted. It is very important that you always respond to these notices – if you don’t, you may be responsible for any interest, penalties and interest resulting from the audit.
The examiner’s notice you receive will:
- state the nature of the problem and an explanation of possible changes in your tax situation;
- ask you to provide additional information or explain why you disagree with these changes;
- Give you a date by which you should respond; and
- Give you the name and telephone number of the DOR employee who is handling your case.
Audits are usually conducted for a three-year period, but may be expanded up to six years if your returns were not filed when they were due.
During the audit, you and the auditor will review your records, and the returns you filed to resolve any issues or concerns. You will be allowed adequate time to respond to our questions – and to ask your own.
In some cases, you may be asked to voluntarily waive the statute of limitations on the audit period. This is usually done if additional time is needed to conduct the audit and will prevent a possible assessment due to lack of time to fully complete the audit.
Yes, there are two main types of audits. Many audits - known as desk audits – are pretty straightforward and can be completed quickly via letters between the Department and the taxpayer. In other cases, DOR may have to examine a taxpayer's books, records, etc., to verify his or her tax liability. These examinations are known as field audits .
Before the field audit, an auditor will contact you to arrange a convenient time to meet at a DOR office or, if a business, at the business’ location. Audits may also be arranged, by mutual consent, to take place at your accountant’s or other representative’s office.
Field audits are usually conducted during normal work hours. We will work with you to minimize the impact of the audit on your schedule or your business operations.
The auditor will describe the types of records that you’ll need to show, and will explain the planned audit method and procedures.
The auditor will also:
- provide you with a copy of the Massachusetts Taxpayer Bill of Rights and answer any questions you may have regarding your rights;
- determine how your records will be reviewed;
- if you’re a business, discuss the company and ask how your records are maintained. You’ll also be asked to identify other issues which may affect the audit;
- determine the method in which the audit will be conducted. 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.
Yes. You can have an attorney or anyone else accompany you when you meet with a DOR employee. If you want someone to represent you, you must give that person what is known as a Power of Attorney. To do so, submit a completed Form M-2848 to DOR. A Power of Attorney will legally allow us to discuss your case with the person you designate.
After the audit is completed, you will be notified of the findings. The auditor will explain any adjustment to you or your representative before finalizing the audit. If you have information we have not considered, or if you believe a mistake has been made, please contact the auditor promptly.
The auditor will also:
- 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; and
- 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.
If a tax is determined to be due, a Notice of Intent to Assess (NIA) will be sent to you. Taxpayers who do not dispute the findings of an audit are encouraged to pay at this point to avoid any further penalties or interest. Taxpayers who do dispute an audit finding still may want to pay in order to avoid additional interest in case they ultimately lose their appeals.
Yes. If a taxpayer wins an appeal, DOR will pay interest on any money it has been holding from the date the Department received a properly completed abatement application.
DOR has the legal authority to audit any type of individual or business return for up to three years after it has been filed. This period is known as the "open years." Under certain conditions, such as massive underpayment or fraud, business and individual income tax returns may be audited for up to six years.
For their own protection, taxpayers should keep tax records for as long as possible or for at least six years; the lack of records may make proving your tax liability or verifying a payment difficult.