Strategies to Reduce Your Risk in a Texas Franchise Tax Audit

If you own a business in Texas, it is essential to understand the Texas franchise tax audit and what it entails. In Texas, businesses are responsible for paying a franchise tax, which is based on the taxable margin of the business. The state conducts audits of businesses to ensure that they are in compliance with this tax. If you are facing a Texas Franchise Tax audit, it is normal to feel overwhelmed and stressed about the process. But, do not worry! In this blog post, we will walk you through what to expect during a Texas Franchise Tax audit.

1. Notification of Audit:

The first thing that you can expect during a Texas Franchise tax audit is a notification of the audit. This notification will be sent to your business's address via mail. In the notification, you will find the name and contact information of the auditor assigned to your case, the timeframe of the audit, and the records that the auditor will need to review.

2. Information Gathering Stage:

Once you receive the notification, you will need to gather all the relevant documents. These documents include income tax returns, financial statements, ledger accounts, and bank statements. After you have gathered all the documents, the auditor will review them, looking for discrepancies in your financial statements and reports. The auditor will assess whether the documents that you have submitted are complete and accurate.

3. Interview Stage:

Once the information gathering stage is complete, the auditor will conduct an interview with you or your representative to discuss various aspects of your business. The auditor may ask for additional documents or explanations of specific transactions. The auditor will also assess whether you have appropriately calculated taxable margin or any deductions claimed.

4. Audit Findings Stage:

After completing the interview, the auditor will prepare a report with their findings. The report will outline any discrepancies or issues that were identified during the audit. In the report, you will also see whether you will receive a refund, have a tax balance due, or if there is no adjustment. In case there is a tax balance due, the auditor will provide a breakdown of how the balance was calculated.

5. Appeal Process:

If you disagree with the audit findings, you have a right to dispute the findings. You have 60 days from the date of the audit report to file a protest. This protest must be in writing and specify the grounds for disputing the findings. The Comptroller will then review the dispute and either affirm, modify, or reverse the findings.

In conclusion, facing a Texas Franchise Tax audit can be a stressful experience for any business owner. However, you do not need to feel overwhelmed by the process. As outlined above, the Texas Franchise Tax audit process involves several stages, starting from the notification of the audit to the information gathering stage, interview stage, audit findings stage, and appeal process. Always seek professional support, additional guidance, and advice from a tax expert or attorney in regards to any dispute before during and after an audit. We hope that this blog post has provided you with valuable information on what to expect during a Texas Franchise Tax audit.