REVERSE TAX AUDIT
A reverse tax audit is conducted by your CPA or a tax lawyer when it is suspected that sales taxes have been overpaid. In a self-assessing sales tax audit, the taxpayer reviews his or her own records and pays the dues that resulted from the review.
In a reverse tax audit, your CPA or tax lawyer goes back and audits your process and the steps you took to pay your dues. They look at the documents you had and how you reviewed them to see if there are any mistakes in these error-prone steps.
The job of your CPA or tax lawyer is similar to what state tax auditors do, except the CPA or tax lawyer specifically looks for factors that can result in a refund of the overpayment.
ROLE OF CPAs
The role of tax lawyers and CPAs in a reverse tax audit is to go back and look for overpayments made by taxpayers and companies. They look for sales tax payments made for purchases that might qualify for tax exemptions.
They need to be familiar with and fully understand a state’s tax laws and procedures for recovering tax overpayments. Nowadays, there have been incidents where state tax auditors deny tax exemptions and charge tax for items that can normally classify as an exemption.
Or, sales tax collectors only focus on sales tax underpayment meaning that they will only contact you because you owe them more money, they’ll usually stay quiet if it’s a sales tax overpayment.
It is the taxpayer’s responsibility to claim the exemption and carefully review what they are making payments for because if the exemption is not claimed, the supplier will charge sales tax.
KEEP IN CONTACT WITH YOUR CPAs
Always keep in contact with your CPA to make sure they can assist you with your audit and reverse tax audit and may even save you money by avoiding overpayments.
If you are eligible for a sales tax refund because of overpayment, you have two options depending on what state you are from: taxpayers can request a refund from the suppliers who they originally purchased from or taxpayers can request a refund directly from the tax authorities.