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Sulphur Production Manual

Revised 10/2005

Chapter 4 - Audit Write-Up


Introduction

The result of an audit will be either a deficiency (tax is due to the state), a credit audit (taxes are due to the taxpayer), or a no tax change audit. A no tax change means that the reported amounts were correct and no audit adjustments are required. The write up procedures are different depending on the audit results.

The write up of a sulphur production tax audit is considered a manual audit write up as opposed to a limited sales and use tax audit (an uploaded audit) which is an automated tax. Since the sulphur production tax is not automated on the system, the actual tax amounts need to be calculated by the auditor on excel schedules. These schedules are discussed later in this chapter.

A deficiency audit results when taxpayer owes additional sulphur production tax to the State of Texas. In addition to the additional tax, the taxpayer will also be assessed penalty and interest. The taxpayer has the right to disagree with the audit results if they feel the audit is not accurate in its assessment. If an audit results in a credit due the taxpayer, credit interest will accrue on reporting periods due on or after January 1, 2000.

When an audit examination results in no adjustments, then a No Tax Change audit should be prepared. Refer to the Auditing Fundamentals Manual for specifics. An amended audit is an adjustment to a completed audit, usually as a result of a hearings decision. Refer to the Auditing Fundamentals Manual for write-up procedures for an amended audit.


Schedules and Forms

Audit write-up includes completion of the following:

  • Record of Audit Planning, Activities, and Results
  • Exhibits (if any)
  • Exams (schedules) and Supplemental Exams (supporting schedules)
  • Index to Working Papers (Template)
  • Audit Adjustment Report (Form)
  • Tax Adjustment Summary (Auditor generated Exam)
  • Audit Cover Letter (Template)
  • Audit Report (Template)

See the Auditing Fundamentals Manual for specific examples or explanations of the documents, exhibits, templates and/or forms listed above.

A few of these documents are shown below.


Audit Cover Letter, Example


March 18, 2004

Thomas C. Smith
Vice-President of Finance
ABC Sulphur, Inc.
123 Main Street
Houston, Texas 77250

RE: Taxpayer Number 17412345678


Dear Mr. Smith:

Our audit, conducted in accordance with the Sulphur Production Tax Statute, is complete. The audit covered the period January 1, 2003, through December 31, 2003, and resulted in an adjustment in the amount shown on the attached Texas Notification of Audit Results. We have included a pre-addressed envelope for your payment convenience. For an explanation of the interest calculations, contact the Audit Processing Section of the Revenue Refund Division at 1-800-531-5441 extension 3-4479.

We have waived the penalty for periods which were originally filed on time. However, we have not waived interest. Interest waiver is considered only where written, documented proof exists that a taxpayer relied to its detriment on misinformation from the State. If you disagree with our decision, you may request a redetermination hearing by our Legal Services Division.

Audit adjustments are explained on the enclosed Audit Report.

At the exit conference, you agreed with the audit results. You were provided with the brochure "Dispute Resolution Conference" (Form 96-321-T) and advised of your right to meet with a dispute resolution officer. I also provided you with the brochure "What if I don't agree with the results of my audit?” (Form 96-129) and advised you of the requirements necessary to initiate a formal redetermination hearing.

If you have any questions, please contact me in the Houston South Audit Office at 713/665-1200. Thank you for your cooperation during the audit.

Ima Auditor

Auditor


NOTE:   The Euless Processing Center (RPC) takes the form letter submitted with the audit package and generates a new letter and mails to the taxpayer. Auditors need to use the “FORM OPTION” for the cover letter template when printing the cover letter to submit to the Processing Center.


Audit Report, Example


AUDIT REPORT

ABC Sulphur, Inc.
Taxpayer Number 17412345678
January1, 2003 through December 31, 2003


This report summarizes adjustments made in the audit.

  1. A detail examination was completed for Exam 100. Adjustments were made for calculation errors.
  2. A detail examination was completed for Exam 200. Adjustments were made for underreporting of total long tons produced.


Index to Working Papers, Example


                               ABC Sulphur, Inc.
                                 Houston, Texas
                                 TP#17412345678

                             INDEX TO WORKING PAPERS

DESCRIPTION                                                 PAGES


AUDIT ADJUSMENT REPORT                                        1

TAX ADJUSTMENT SUMMARY                                        1

Exam 100               CALCULATION ERRORS                     1

Exam 200               UNDERREPORTED TOTAL LONG TONS          1


Audit Adjustment Report

The Audit Adjustment Report (AAR) is a form that needs to be completed by the auditor. The amounts on this form should be subtotaled by column.  The AAR shown on the index is the automated computer printout that the Processing Center will add to the final audit package that is mailed to the taxpayer. This is the result from the information input by the Processing Center from the manual form prepared by the auditor.

Double check the amounts shown on the AAR manually to ensure that the tax entered on that form is the correct tax amount as shown on the Exam schedules. Differences noted could be rounding formulas in the excel spreadsheet.



Audit Adjustment Report, Example

Audit Adjustment Report

Tax Adjustment Summary

This is the auditor generated excel schedule that summarizes the tax due for all report periods in the audit. The Exams that are referenced as sources for the numbers on the Tax Adjustment Summary) should be listed on the index and included in the audit package. The Tax Adjustment Summary should be totals that are forwarded from all Exam schedules that contain audit adjustments. The Excel spreadsheet should be double checked for any formulas and rounding that may affect the calculation of the tax. This is important as rounding may change the tax due. Double check the AAR manually to ensure that the tax entered is correct and that there are no math (rounding) errors.



Tax Adjustment Summary, Example


Audit Adjustment Summary, Example



Exam 100, Example


Exam 100

Above schedule is included in the manual for illustration purposes only and is not to be construed as the accepted format. All audit schedules will need to be tailored to the audit situations encountered and to the auditors’ needs.



Exam 200, Example


Exam 200

Above schedule is included in the manual for illustration purposes only and is not to be construed as the accepted format. All audit schedules will need to be tailored to the audit situations encountered and to the auditor’s needs.

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