Tim Lott-Your Trusted Dental CPA
Tim Lott-Your Trusted Dental CPA
We provide the answers, as well as the practice plans to help you secure your dental goals.
Tim Lott, CPA, CVA

Income Tax Notices are Always Correct, Right?

6/24/2019 10:17:52 AM   |   Comments: 0   |   Views: 150

Don’t Pay Your Audit Notice Without Consulting your CPA

So you receive an audit notice in the mail, its multiple pages and it includes a bunch of information.  You read through the notice and you think, it’s not much money in the grand scheme and the explanation seems legit, so you decide to just pay the requested amount and move on.  Not so fast, you may have just paid taxes, penalties and interest you don’t even owe! 

Case in point, we recently had a client receive an audit letter from their home state suggesting a deduction they took for three straight years was not allowed. The letter was multiple pages and explained why the deduction was disallowed citing specific section of their tax code from 2004.  The explanation was written in such a way that most taxpayers would simply believe it must be accurate and accept it.  

The client forwarded the notice to us for review before they paid it and upon reading the notice we quickly determined that the code section quoted in the explanation may be way out dated since it referenced 2004.  We consulted with the client and suggested they allow us to formulate a response to the notice and see if the state would re-consider their position. The client agreed and we replied to the notice from the first of the three years and waited for a response. Fortunately for our client our written response to the first notice was accepted and the state responded by closing the audit for all three years removing the amounts they said the client owed.  This saved our client over $6,000!

When you elect to just pay a notice without consulting your CPA you are likely paying more taxes unnecessarily.  Tax notices, particularly from states, can often lead to the review and audit of multiple years.  This can cause notice after notice to show up in your mailbox.  It’s a slippery slope, paying that one notice may turn into paying multiple years which can quickly add up.  If you don’t  respond properly to the first notice there could be even more work responding to the subsequent notices. 

Additionally, most taxing authorities put a clock on the amount of time you have to respond to notices.  If you get your CPA involved late in the game you may have cost yourself excess taxes even if you were in the right.  Bottom line, give your CPA the opportunity to look over any notice you receive that suggests you owe more tax than you paid and allow them to determine the best course of action.  More often than not, it’s a matter of writing a letter or providing support to reduce or eliminate the tax, penalty, and interest due. 

Finally, the state in question in this case was New Jersey and we suspect they are targeting dentists specifically for this unique deduction that many may have taken. We also suspect many New Jersey dentists will simply cough of the amount due on the notice and not even question the explanation. That’s easy money for New Jersey.

 

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