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Why is the Department of Revenue auditing your tax return?

The Massachusetts Department of Revenue works closely with the IRS. The information sharing between federal and state or within state agencies is frequently a trigger. This means what seemed like a problem related to the classification of workers could be something much larger when the state and federal tax implications are layered on.

Another reason that your return may have been selected for audit is random chance. The state agency reviews a random selection of tax returns to determine if patterns emerge that must be addressed. Regardless of the reason your return was selected for an audit, the process can take time.

The two types of audits

Most audits at the state level are completed via mail – called desk audits. The tax notice may request more information about a claimed deduction (for example, proof to substantiate gambling losses) or business income listed on a 1099.

Often the audit will address a mistake – maybe two numbers were transposed and this affected both the amount that you owed the federal government as well as the state of Massachusetts.

In addition to explaining the problem and how it affects the amount you owe, the notice will also include:

  • How much time you have to respond
  • The name and contact information for the DOR employee assigned your case

A field audit is required when an auditor requests an in person meeting to go over books, records or other physical evidence. These types of audits are increasingly rare, but can still happen. It can be very beneficial to have an attorney at this meeting to protect your rights.

Either of these types of state tax audits generally only go back three years unless there are unfiled returns. Getting sound legal advice before deciding on a response strategy is always important to mitigate potential risks and make informed decisions.

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