Audit Manual - The Official Website of the State of Indiana
Audit Manual
May 2020
Indiana Department of Revenue
DISCLAIMER
The purpose of this manual is to provide general guidance to the public about the procedures employed by the Department of Revenue's Audit and Compliance Operations Division. The Department of Revenue reserves the right to depart from the procedures outlined herein, if the facts and circumstances of a particular audit warrant such a departure. Such departure will in no way undermine or invalidate any audit assessment where all applicable statutory and regulatory requirements are met.
This manual does not reflect changes in laws, regulations, notices, decisions, or administrative procedures that may have been enacted, issued or adopted since the manual was last updated. This manual and the information contained herein is not authorized to support any audit position or used as citation. The controlling statutes, regulations and case law should guide customers and the Department of Revenue auditors in presenting their respective positions when conducting an audit or investigation.
This manual does not constitute a public policy statement of the Department of Revenue. Moreover, this manual does not constitute written guidance by the Department of Revenue to the public at large or any specific customer.
The auditing methods and techniques suggested in this manual serve primarily as administrative guidance, and may not be appropriate, applicable or necessary for every audit. Auditors should use discretion when deciding which techniques to use in a particular audit and consult with their supervisors whenever unique factual patterns or legal issues arise.
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TABLE OF CONTENTS
CHAPTER 1 OVERVIEW
5
ABOUT THE DEPARTMENT OF REVENUE
5
PURPOSE OF THE AUDIT MANUAL
6
DOR RESOURCES AND REFERENCE MATERIAL
7
CHAPTER 2 AUDIT DIVISION
8
AUTHORITY
8
AUDIT DIVISION POWERS AND DUTIES
8
AUDIT OPERATIONS
8
AUDIT AND COMPLIANCE SUPPORT
8
CHAPTER 3 TAXPAYER RIGHTS AND RESPONSIBILITIES
11
TAXPAYER'S BILL OF RIGHTS
11
RESPONSIBILITIES AS AN INDIANA TAXPAYER
12
RIGHT TO REPRESENTATION
12
TAXPAYER ADVOCATE OFFICE
13
CHAPTER 4 AUDITOR EXPECTATIONS AND RESPONSIBILITIES
14
OVERVIEW
14
CONFIDENTIALITY
14
COMPETENCY
14
INTEGRITY
14
CONFLICTS OF INTEREST
15
DATA SAFEGUARDS
15
CHAPTER 5 GENERAL INFORMATION
16
ACRONYMS
16
GENERAL TERMS
16
EXTENDING THE STATUTE OF LIMITATIONS
18
INFORMATION DOCUMENT REQUEST (IDR)
18
INTEREST AND PENALTY
18
POSTMARK RULE IC 6-8.1-6-3
19
TRUST TAXES
19
RESPONSIBLE PERSONS
20
BANKRUPTCY
20
CHAPTER 6 PRE-AUDIT PREPARATION
21
PRELIMINARY REVIEW OF CUSTOMER'S RECORDS AND TAX RETURNS
21
DEVELOPING THE AUDIT PLAN
21
INITIAL CONTACT LETTER
21
INITIAL CONTACT-PHONE CALL/EMAIL
21
PRE-AUDIT INTERVIEW, TOUR, AND PRE-AUDIT QUESTIONNAIRE
22
DISCUSSING CUSTOMER'S RECORDS AND RECORDKEEPING SYSTEMS
22
DISCUSSING CUSTOMER'S ACCOUNTING PRACTICES
22
EVALUATING INTERNAL CONTROLS
22
CHAPTER 7 WITHHOLDING TAX AUDITS
23
WHAT TO EXPECT FROM A WITHHOLDING TAX AUDIT
23
WITHHOLDING TAX OVERVIEW
23
REGISTRATION OF NEW WITHHOLDING AGENTS
24
DOCUMENTATION REQUESTS
24
WITHHOLDING TAX AUDIT PROCEDURES
24
CONCLUDING THE AUDIT
24
WITHHOLDING TAX REFERENCE MATERIAL
25
CHAPTER 8 SALES AND USE TAX AUDITS
25
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WHAT TO EXPECT FROM A SALES AND USE TAX AUDIT
25
SALES AND USE TAX OVERVIEW
25
REGISTRATION AND REPORTING REQUIREMENTS
25
DOCUMENTATION REQUESTS
27
SALES TAX AUDIT PROCEDURES
27
USE TAX AUDIT PROCEDURES
28
ELECTRONIC VS. PAPER RECORDS
29
CONCLUDING THE AUDIT
29
SALES AND USE TAX REFERENCE MATERIAL
30
CHAPTER 9 "GENERAL" INCOME TAX AUDITS
31
WHAT TO EXPECT FROM AN INCOME TAX AUDIT
31
INCOME TAX OVERVIEW
31
DOCUMENTATION REQUESTS
32
AUDIT PROCEDURES
33
CHAPTER 10 SPECIFIC INCOME TAX ITEMS
34
NEXUS
34
APPORTIONMENT
34
CORPORATION THAT HOLDS INTEREST IN A PARTNERSHIP
35
COMPOSITE RETURNS
36
COMBINED AND CONSOLIDATED RETURNS
36
DEPRECIATION ADDBACKS AND DEDUCTIONS
37
STATE INCOME TAX ADDBACK
39
INTANGIBLE EXPENSES ADDBACK
40
OTHER ADDBACKS
41
NET OPERATING LOSSES
42
OTHER DEDUCTIONS
42
INCOME TAX CREDITS
44
CHAPTER 11 POST-AUDIT AND FINAL CONFERENCE PROCEDURES
49
POST-AUDIT CONFERENCE
49
INTERIM POST-AUDIT COMMUNICATIONS / CONFERENCES
49
FINAL CONFERENCE
49
ONGOING COMPLIANCE
49
CHAPTER 12 SAMPLING AND COMPUTER ASSISTED AUDITS
50
SAMPLING OVERVIEW
50
COMPUTER AUDIT SPECIALISTS
50
NON-STATISTICAL SAMPLING
50
STATISTICAL SAMPLING
52
CHAPTER 13 FILED AUDIT WORKPAPERS
56
WORK PAPER STANDARDS
56
CROSS REFERENCING
56
CONTENTS OF WORK PAPERS
56
OTHER AUDIT DOCUMENTS
57
CHAPTER 14 CASH INTENSIVE BUSINESSES
58
GENERAL INFORMATION
58
PRE-AUDIT PROCEDURES
58
ANALYSIS OF BOOKS AND RECORDS
58
USING AN INDIRECT AUDIT METHOD
59
CHAPTER 15 REFUND CLAIM PROCESSING
61
OVERVIEW
61
REFUND CLAIM PROCESSING / REVIEW PROCEDURES
61
Indiana DOR Audit Manual
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UTILITY STUDY REVIEW PROCEDURES (FORM ST-200)
62
SUPPORTING DOCUMENTATION
63
SALES TAX (NON-UTILITY)
63
SALES TAX (UTILITY)
63
WITHHOLDING
63
INTEREST AND PROTEST PROCEDURES
63
CHAPTER 16 ? AUDIT AND COMPLIANCE SUPPORT
65
LIMITED SCOPE / DESK AUDIT PROCEDURES
65
QUALITY ASSURANCE AND BILLING
65
NOTICE OF PROPOSED ASSESSMENTS
66
PROTEST PROCEDURES
66
AUDITOR SURVEY
66
OPTIONS TO PAY THE AUDIT BILL
66
CHAPTER 17 OTHER TAXES AND FEES
68
FOOD AND BEVERAGE TAX (FAB)
68
ENHANCED PREPAID WIRELESS TELECOMMUNICATIONS FEE
69
MOTOR VEHICLE RENTAL EXCISE TAX (MVR)
69
COUNTY INNKEEPER'S TAX (CIT)
70
WASTE TIRE MANAGEMENT FEE (TIF)
71
CHAPER 18 SPECIAL TAXES
72
CONTACT INFORMATION
72
FIREWORKS PUBLIC SAFETY FEE (FPS-103)
72
AVIATION FUEL EXCISE TAX (AVF-150)
73
GASOLINE AND OIL INSPECTION FEE (MF-360)
74
SPECIAL FUEL TAX AND OIL INSPECTION FEE (SF-900)
76
GASOLINE USE TAX (GUT) (GT-103 AND GT-103DR)
79
PETROLEUM SEVERANCE TAX (MF-600)
80
ALCOHOL EXCISE TAX ? BEER, CIDER, LIQUOR, WINE PRODUCERS (ALC-M)
81
FARM WINERY TAX (ALC-FW)
85
ALCOHOLIC BEVERAGE WHOLESALER EXCISE TAX (ALC-W)
86
RESIDENT & NON-RESIDENT CIGARETTE TAX (CIG-M):
87
RESIDENT & NON-RESIDENT OTHER TOBACCO PRODUCTS (OTP) TAX (OTP-M)
90
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