Cliff's Notes

The Audit … Get Ready Because It’s Coming!

Federal Tax Audits, State Tax Audits, Insurance Company Audits

Yes, they are all coming and they will be in real time. With changes in federal regulations and the Affordable Care Act more freedom is being given to the states to manage their own programs. With that, the government‘s plan to lower the federal tax rates will also lead to a reduction in federal aid to the states. The idea is to give the general population more money to spend and a greater say in how they spend it. That is a consumer driven economy. However, to maintain public services the federal and state governments will need capture lost revenue. With the technology now available, and years of electronic data random audits will be the new normal.

Lost Revenue … Hundreds of millions of dollars in uncollected sales tax revenue is lost through interstate retail commerce. Individual state laws do not apply to non-resident companies, states cannot force other states to comply with their laws, that’s where the feds come in. One of the responsibilities of the federal government is to regulate trade between the states. The lost revenue issue may be solved by creating a federal sales tax.

The Federal Tax Audit … Don’t think you are too small to be noticed. The feds understand investment so their time was spent on big organizations. Technology has redefined the term “BIG”. If your organization accepts payments through federal programs such as Medicare, you are on the radar screen. If patients claim your services as tax deductions you’re on the radar. If your cash deposits fluctuate beyond an average range you’re on the radar. Maybe it’s time for a self audit on record keeping, ask your tax advisor.

The Random State Audit … If you have never been through one, you can’t understand. I live in New jersey so I can’t comment on the other 49 states but I went through a NJ State audit and I got to tell you, it is not fun. One of my clients is dealing with it now so I thought it would be a good idea to spread the word of caution. The state asks to see everything and when you give them everything you have, they will ask for more. That’s when the fun starts, finding what you don’t have. You will need to prove every payable and receivable transaction. Everything needs to balance with back-up documentation and if you don’t have it, you pay. State tax laws are very specific and the local governments want every tax dollar due to them. However, taxable items in one state may not be taxable in another. As an example, NJ & NY classify taxable items completely different and the point you take possession is where the tax is collected. Ask your tax advisor about state tax compliance and reporting taxes not collected in both your receivable and payable departments. A $17.00 mistake cost my company $2500.00 in interest and penalties plus the accounting time.

Insurance Company Audits … If you do not participate with any insurance companies this will not effect you. However, if you do participate you are required to prove full regulatory compliance upon request. From OSHA to emergency medical equipment all state and federal regulation must be in place. It amazes me that so many dental offices don’t have an emergency O2 tank with an Ambubag and those that do haven’t checked the tank since they got it. You may want to review your insurance contracts for more details.

The Bottom Line … Benjamin Franklin said “a stich in time saves 9”. Preparation and accurate records are essential. Please feel free to contact me with any questions or concerns.

May 16, 2017 - Posted by Cliff's Notes Blog | Uncategorized