Compliance & Enforcement — Senate Business, Financial Services, Gaming & Trade Committee (January 30, 2024)

Summary

A presentation titled Compliance & Enforcement for the Senate Business, Financial Services, Gaming & Trade Committee, dated January 30, 2024, with Steve Ewing and Ken Krous named. Its introduction lists an overview of the Washington tax system, addressing recent questions and misperceptions about DOR audits, and an overview of the Audit Division and audit processes. For FY 2022 it lists 632,324 actively reporting businesses, 3,983 audits and 98.2% voluntary compliance of registered businesses. It describes why and whom DOR audits and what an audit entails from planning through conclusion, and states that DOR will not fault a taxpayer operating off of written DOR guidance, even if guidance is wrong.

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Issuer: Congressional materials
Document type: Audit Report
Date: 2024-01-30

Cite this document

“Compliance & Enforcement — Senate Business, Financial Services, Gaming & Trade Committee (January 30, 2024).” Original at app.leg.wa.gov, dated 2024-01-30. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2024-01-30-2024-01-30-a31844-d267602-dor-audit-enforcement/, SHA-256 9beb735272fc7a9ca4f6cad14ca17169693395a4bb8fe06b25b86996c9be48c3.

Full text

Compliance & Enforcement
Senate Business, Financial Services, Gaming &
Trade Committee, January 30, 2024
Steve Ewing
Ken Krous
Introduction
• Overview of Washington tax system.
• Address recent questions and misperceptions about DOR audits.
• Overview of Audit Division and audit processes.
• What you may hear from constituent taxpayers.
Senior meals (SB 5494)
• “DOR has changed its tune,” or, “They’ve flipped on long-standing
  practice.”
• An audit may be the impetus.
• Taxpayer was audited: not collecting sales tax on meals of
  independent-living residents.
• Audits are an opportunity to educate.
   • Discuss reporting requirements.
   • Review policies and new legislation with taxpayers.
Washington’s tax system
• Largely based on voluntary compliance.
• Educate taxpayers whenever possible.
   • Outreach, speaking engagements, business consultations.
   • Penalty waivers.
   • Free guidance.
   • Voluntary Disclosure Program.
• Enforce tax laws when necessary.
• Allow for taxpayers to dispute/appeal DOR findings.
Outreach & enforcement
 25,000                                            22,968       23,010
                            20,410
 20,000
          17,323
                                                   11,607       11,560
 15,000
          7,958             10,755
 10,000

  5,000                     9,655                  11,361       11,450
          9,365

     0
          FY19              FY20                    FY21        FY22
              Enforcement            Education/Administrative    Goal
Taxpayer rights
Taxpayer responsibilities
Voluntary compliance
• Audit window: 4 years + current year.
• FY 2022:
   • 632,324 actively reporting businesses.
   • 3,983 audits.
   • 98.2% voluntary compliance of registered businesses.
Audit Division

Audits & examinations       Taxpayer education        Other services
• Field audits.             • Business outreach.      • Corporate dissolutions.
• Public works contract     • Speaking engagements.   • Voluntary Disclosure
  clearances.               • Consultation visits.      Program.
• Desk examinations.                                  • Lemon law refunds.
• Refund request
  verification.
• Real estate excise tax.
• Estate tax.
• Forest tax.
Audit Division

Audits & examinations
• Field audits.             • 229 excise tax auditors:
• Public works contract        • 174 in-state.
  clearances.                  • 55 out-of-state.
• Desk examinations.
• Refund request
  verification.
• Real estate excise tax.
• Estate tax.
• Forest tax.
Why we audit
• Verify reporting accuracy for various taxes.
• Correct improper reporting.
• Identify unregistered businesses.
• Deter tax evasion.
• Promote voluntary compliance:
   • Explain reporting requirements to businesses.
   • Review policies, administrative rules, and laws.
Who we audit
• Account analysis.
• Fraud referrals / tax discovery.
   • Identify unregistered businesses.
   • Detect taxpayers significantly underreporting tax liability.
• New businesses.
• Training and development.
• Random selection.
What an audit entails
Planning the audit
• Taxpayer research: reporting history, industry.
• Tax law research.
• Business is contacted and audit is scheduled.
What an audit entails
Performing the audit
• Meet the business’s representative.
• Tour the business.
• Interview owner and accounting staff.
• Evaluate the accounting system and internal controls.
What an audit entails
Performing the audit
• Income verification.
• Deductions and exemptions.
• Sales tax.
• Purchases.
What an audit entails
Audit findings & education
• Explain the tax law and application to the business.
• Explain reporting errors resulting in the assessment.
• Discuss any disagreements.
• Explain options for administrative review.
What an audit entails
Conclusion of the audit
• Taxpayer agreement:
   • Audit is reviewed and the assessment is issued.
   • Business receives the audit results and a written explanation of findings.
• Taxpayer disagreement:
   • Meeting with the revenue auditor’s supervisor is offered to discuss the audit
     before it is submitted.
   • Administrative review options are again provided.
Taxpayer responses
• “I talked to other businesses like mine, and they aren’t paying the tax.”
• “I’ve never heard that I have to pay this tax.”
• “DOR audited me before and didn’t raise this issue.”

• No two taxpayers are alike.
• A DOR letter ruling only applies to one taxpayer.
• Taxes very dependent upon specifics of business model & activity.
• Audits may be focused on one particular tax, not whole business.
DOR adjustments
• DOR will not fault a taxpayer operating off of written DOR guidance,
  even if guidance is wrong.
• If DOR determines widespread misunderstanding, may publish
  additional information.
Conclusion
• Reasons for audits:
   • Verify accurate reporting of taxes.
   • Correct improper reporting.
   • Identify unregistered businesses.
   • Deter tax evasion.
   • Promote voluntary compliance.
• Voluntary compliance tax system.
• Audits are a true-up of taxpayer practice.

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Original: app.leg.wa.gov