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Audit Questions

Common Questions about Audits
Here are answers to common questions for taxpayers that have been notified that they have been selected for audit.  

  • Why are taxpayers audited

Audits are conducted to:

  • Enforce Maine tax laws fairly and uniformly
  • Deter tax evasion
  • Promote voluntary compliance
  • Educate taxpayers
  • How are audits selected?

Maine Revenue Services accepts most returns as filed.  However, if your return is selected for audit, it may be a result of Internal Revenue Service information, data matching,  or managerial selection based on filing trends or other criteria.

  • Are there different types of audits?

There are two main types of audits.  So-called "desk audits" are  usually quite straightforward and can be completed quickly via letters, telephone conversations, facsimile and e-mails.  . In other cases,  we may have to examine a taxpayer's books and records in order to verify the correct tax liability. These examinations are known as field audits and typically occur at the taxpayer's place of business. 

  • What  happens once I'm selected for an audit?

You will receive written notification from Maine Revenue Services that you have been scheduled for an audit.   In this notification, you will be informed about the type of audit, the tax being audited, the periods being audited and  will be provided with auditor contact information. If you have been scheduled for a field audit, the assigned auditor will work with you to schedule a mutually convenient time to start the audit. 

  • What information will you review?

The information reviewed  depends on a variety of factors including the type of audit being conducted.   Records requested from the taxpayer (in either paper or electronic form) could include:
-Returns filed with Maine Revenue Services, Internal Revenue Service and  revenue departments of other states
-General ledgers and journals
-Cash receipt and disbursement journals
-Original invoices
-Depreciation schedules
-Contracts  and lease agreements
-Exempt sales documentation
-Minutes of corporate meetings
In addition to information requested from the taxpayer, we may also review information  obtained from  the IRS  agencies and Departments of the State of Maine and other sources. 

  •  How long will an audit take? 

We make every effort to conduct  audits with a minimum of business disruption.  The  time needed to complete an audit  depends in part on the complexity of the audit issues identified and the taxpayer's cooperation during the audit process. Good communication will speed up the audit process and result in more accurate audit findings. 

  • What are your rights and responsibilities during an audit?

Your rights and responsibilities are  fully outlined in  Your Rights as a Taxpayer  If you have any questions about your rights and responsibilities, please be sure to ask your auditor.

  • Can a lawyer or accountant handle this for me?

Yes, you may appoint a representative to handle an audit on your behalf by completing and returning a Power of Attorney and Declaration of Representative Form 2848-ME

  • How far back can an audit go?

Generally a return can be audited for three years after the return was filed or due to be filed, whichever is later.   Exceptions to this general rule exist if:

  • The tax liability as shown on the return is less than ½ of the correct tax liability.  In this case, the audit period can be extended for up to six years;        
  • A fraudulent return was filed.  In this case, there is no time limitation; or
  • No return was  filed.  In this case, there is no time limitation. 

During the course of an audit, you may be asked to sign an extension of limitations that  extends the time periods  under review while we continue to work with you to determine the correct tax liability.  

  • What happens after the audit?

After the audit, you will be informed of the results of the audit in writing along with the legal basis for any adjustments proposed by the audit.  An assessment, if necessary, will then be issued.

  •  What should I do if I disagree with the audit results? 

If you disagree with the audit results, please review  Your Rights as a Taxpayer, which fully explains your options. 

  • What if I  can't afford to pay? 

 If you do not intend to contest a tax assessment that results from an audit but need some flexibility in payment terms, please contact the Maine Revenue Services Compliance Division as soon as possible at (207) 624-9595 to discuss  payment options. 

  • What can I do to reduce the likelihood of being audited or to reduce the amount of any assessment if I am audited?   
    • File returns and remit tax payments on a timely basis
    • Double check your return for mathematical errors prior to filing
    • On a sales tax return, remember to report gross sales less exempt sales in arriving at taxable sales
    • Insist on and prepare proper documentation for  all tax-exempt sales
    •  Be sure that you understand what makes up the "sale price" that is subject to sales tax in your area of business
    •  Remember that if you make  purchases  from vendors located outside of Maine, you may be liable for use tax.
    • File amended income tax returns following an  IRS audit that effects your Maine tax liability within 180 days after the final federal determination
    • Pay particular attention when starting, buying, selling  or closing a business.  These transactions can have significant tax ramifications. 
    •  Pay particular attention when transferring business assets due to potential tax ramifications.
    • Understand the interstate tax ramifications  if you  conduct business in more than one state