Managed Audit vs. Voluntary Disclosure Agreement

Written by: James Edington

When your company is under audit by a taxing authority, or when you suspect tax errors and wish to rectify the issue prior to a formal audit taking place, managing that process can be overwhelming. DMA’s experts provide clients facing these situations with two primary options that can help them minimize and sometimes avoid penalties and fees: managed audits and voluntary disclosure agreements.

Managed Audit

A managed audit is a formal self-audit that leads to a penalty waiver, and partial or full interest waiver.

In some cases, when a company is under audit, the taxing authority (such as the state) offers a managed audit option. This is where the corporate taxpayer conducts its own audit. However, not every company has the necessary time or workforce to dedicate to such a large undertaking.

Not to worry—we have the solution. Our expert transaction tax audit team will play the role of “Audit Manager” on your behalf through our managed audit service.

By leaning on our experienced tax professionals, you can rest assured that the audit findings are substantiated from the beginning, thereby reducing the need for burdensome negotiations. Not only do we perform the audit as your representative, but we also provide you with a final report addressing the audit process and findings. As a result, we will minimize your current transaction tax liability while simultaneously recommending solutions to eliminate future complications.

Voluntary Disclosure Agreements

When clients believe they have a problem with their transaction tax process due to no tax remittance, they may be proactive and opt for a voluntary disclosure agreement. Through this process, your tax team has the opportunity to identify and fix the problem before your company falls under audit. It is important to note that this option is not available if you’re already under audit.

Fortunately, DMA’s professionals can find and fix the error through our voluntary disclosure agreement service.

Our voluntary disclosure agreement service works hand-in-hand with our nexus review process. With this, our team analyzes your company’s activities by state to determine if you are properly complying in jurisdictions for which sufficient presence is established.

We look at factors such as:

• Sales activity
• Property locations
• Payroll
• Location of personnel
• Inventory locations
• The nature of product or service delivery

Once reviewed, our team provides a nexus risk analysis deliverable with recommendations regarding managing jurisdictions where you may not be fully compliant with registration and filing requirements. If nexus is established in a taxing jurisdiction for which you are currently not in compliance, DMA will pursue voluntary disclosure agreements with the respective states on your behalf. We negotiate the most favorable terms possible without compromising your business identity, then quantify the tax liability and present those findings to the tax jurisdiction. As your partner, we provide detailed schedules and a report of our findings to substantiate the voluntary disclosure agreement and work with you to establish procedures to prevent the need for future voluntary disclosure agreements.

The Importance of Knowing What to Do Next

Depending on your specific business needs and the details surrounding your audit, one option may be a better solution than the other. Arming your tax team with the knowledge necessary to make these important decisions is crucial for success—and our team can help you make that informed decision.

With you Every Step of the Way

If you find your business under audit, our comprehensive audit management and defense services help you through the entire process from start to finish. Together, we ensure that your transaction tax, and any penalties or interest you are facing, are minimized. Contact our team of transaction tax audit experts to learn more about which services may be right for your organization.