State Tax Audits

As with the federal tax audit, if you’ve been chosen for a state audit, something odd in your tax return has likely triggered it. Random audits are rare these days.

Ensuring Integrity

State tax audits essentially operate the same as the federal tax audit. Both can be excruciating examinations of a taxpayer’s financial life down to the penny. Every account, property, business and asset can be investigated for hints of impropriety. Like the federal tax audit, the state audit is also a dual tool for revenue authorities, ensuring accuracy in returns and overall taxpayer integrity. 

State Revenue

When states face budget constraints, expect them to be increasingly vigilant about their revenue sources. Tightening their belts may also mean tightening areas where potential revenue is lost while bolstering areas where more revenue is made. Because strategic tax audits can accomplish both, audits for taxpayers and businesses showing signs of error could rise in number. Therefore, my advice is this: 1. Beware 2. Operate with integrity 3. Increase your financial literacy on all fronts.

Underreporting Income Undermines You

Naturally, taxpayers want to avoid the burdens of tax paying. Considering all of the hard work, sacrifice, and strategic positioning they may have employed to earn it, they want to save as much of their personal fortune as possible. However, underreporting income is a serious offense to the state. It can lead to serious, punitive consequences. It can also undermine your ability to get loans or effectively transact in the marketplace.

Institutions often ask for tax returns as proof of verifiable income. If you have underreported each year, a lender may see you as unqualified to receive a loan amount. A realtor may see you as ineligible to purchase your dream home. Yet, in reality, you may be able to afford it with ease. But your tax returns suggest otherwise and becomes plausible reason to deny you. At that juncture, you will be reevaluating — wondering if your creative accounting was truly worth it. (See: “Federal Tax Audits”)

Audit Information Sharing

If the state audits you and finds insufficiencies in your tax reporting, they will share that information with federal revenue authorities. Federal revenue authorities will go back and review your federal tax returns with the new calculations provided by the state audit.  Thus, they will send you a bill for what you now owe them. And rest assured, this information sharing also works vice versa.

Post Audit Enforcements

Some states have the power to go beyond liens, levies, and garnishments to enforce your compliance. If you have a hefty tax liability, some states can revoke certain state issued licenses — even annul your driver’s license until the debt is satisfied.

Tax Debt Relief Now

If you’ve been selected for a state tax audit, finding a tax attorney versed in your state’s tax law is essential. Having legal representation that is dually licensed in tax law as well as tax accounting (CPA – Certified Public Accountant) is extraordinarily helpful during state tax audits. We are experienced in several state jurisdictions and licensed in both tax law and tax accounting. If you need state tax debt relief in Virginia, Maryland, D.C., or other areas, we specialize in state tax resolution services. We can possibly get you started in tax relief programs that may be available for your situation right now.

Contact us.

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Don’t panic!  We have a proven track record of resolving your tax concerns.