- Why are taxpayers audited?
- How are audits selected?
- Are there different types of audits?
- What happens once I'm selected for an audit?
- What information will you review?
- How long will an audit take?
- What are your rights and responsibilities during an audit?
- Can a lawyer or accountant handle this for me?
- How far back can an audit go?
- What happens after the audit?
- What should I do if I disagree with the audit results?
- What if I can't afford to pay?
- What can I do to reduce the likelihood of being audited or to reduce the amount of any assessment if I am audited?
1. Why are taxpayers audited?
Audits are conducted to:
- Enforce Maine tax laws fairly and uniformly
- Deter tax evasion
- Promote voluntary compliance
- Educate taxpayers
Maine Revenue Services accepts most returns as filed. However, if your return is selected for audit, it may be a result of Internal Revenue Service information, data matching, or managerial selection based on filing trends or other criteria.
There are two main types of audits. So-called "desk audits" are usually quite straightforward and can be completed quickly via letters, telephone conversations, facsimile and e-mails. In other cases, we may have to examine a taxpayer's books and records in order to verify the correct tax liability. These examinations are known as field audits and typically occur at the taxpayer's place of business.
You will receive written notification from Maine Revenue Services that you have been scheduled for an audit. In this notification, you will be informed about the type of audit, the tax being audited, the periods being audited and will be provided with auditor contact information. If you have been scheduled for a field audit, the assigned auditor will work with you to schedule a mutually convenient time to start the audit.
The information reviewed depends on a variety of factors including the type of audit being conducted. Records requested from the taxpayer (in either paper or electronic form) could include:
- Returns filed with Maine Revenue Services, Internal Revenue Service and revenue departments of other states
- General ledgers and journals
- Cash receipt and disbursement journals
- Original invoices
- Depreciation schedules
- Contracts and lease agreements
- Exempt sales documentation
- Minutes of corporate meetings
- In addition to information requested from the taxpayer, we may also review information obtained from the IRS agencies and Departments of the State of Maine and other sources.
We make every effort to conduct audits with a minimum of business disruption. The time needed to complete an audit depends in part on the complexity of the audit issues identified and the taxpayer's cooperation during the audit process. Good communication will speed up the audit process and result in more accurate audit findings.
Your rights and responsibilities are fully outlined in Your Rights as a Taxpayer. If you have any questions about your rights and responsibilities, please be sure to ask your auditor.
Yes, you may appoint a representative to handle an audit on your behalf by completing and returning a Power of Attorney and Declaration of Representative Form 2848-ME.
Generally a return can be audited for three years after the return was filed or due to be filed, whichever is later. Exceptions to this general rule exist if:
- The tax liability as shown on the return is less than 1/2 of the correct tax liability. In this case, the audit period can be extended for up to six years;
- A fraudulent return was filed. In this case, there is no time limitation; or
- No return was filed. In this case, there is no time limitation.
During the course of an audit, you may be asked to sign an extension of limitations that extends the time periods under review while we continue to work with you to determine the correct tax liability.
After the audit, you will be informed of the results of the audit in writing along with the legal basis for any adjustments proposed by the audit. An assessment, if necessary, will then be issued.
If you disagree with the audit results, please review Your Rights as a Taxpayer, which fully explains your options.
If you do not intend to contest a tax assessment that results from an audit but need some flexibility in payment terms, please contact the Maine Revenue Services Compliance Division as soon as possible at (207) 624-9595 to discuss payment options.
- File returns and remit tax payments on a timely basis
- Double check your return for mathematical errors prior to filing
- On a sales tax return, remember to report gross sales less exempt sales in arriving at taxable sales
- Insist on and prepare proper documentation for all tax-exempt sales
- Be sure that you understand what makes up the "sale price" that is subject to sales tax in your area of business
- Remember that if you make purchases from vendors located outside of Maine, you may be liable for use tax.
- File amended income tax returns following an IRS audit that effects your Maine tax liability within 180 days after the final federal determination
- Pay particular attention when starting, buying, selling or closing a business. These transactions can have significant tax ramifications.
- Pay particular attention when transferring business assets due to potential tax ramifications.
- Understand the interstate tax ramifications if you conduct business in more than one state