On March 20, 2014, Michigan Gov. Rick Snyder signed legislation (H.B. 4291) to ensure taxpayers have the right to request and receive all relevant audit work papers, as well as the audit report of findings supporting the audit determination.
“Undergoing a tax audit is a difficult process, and this bill will make sure taxpayers who are being audited have access to all pertinent information so they can be as prepared as possible,” Gov. Snyder said in a statement.
The Michigan Department of Treasury (Department) has one year from the date of enactment of this legislation to promulgate auditing standards, which shall include, but not be limited to, confidentiality, technical training, independence, due professional care, planning, supervision, understanding of the entity being audited (including internal control and risk assessment), audit evidence and documentation, sampling and sampling projections, and elements of the audit report of findings.
The legislation requires that the Department start the process by sending the taxpayer a letter of inquiry, stating “in a courteous and non-intimidating manner,” the Department’s opinion that the taxpayer needs to provide further information or owes additional tax to Michigan, and explaining the reasons for such opinion. The legislation also provides the taxpayer with the right to request an informal conference regarding the audit.
The legislation provides time periods during which certain steps in the audit process must be taken. The legislation provides that for any audit commenced after Sept. 30, 2104, the Department must complete fieldwork and provide a written preliminary audit determination for any tax period no later than one year after the applicable expiration of the statute of limitations for Michigan tax returns, without taking into account the statutory periods of extension of such statute of limitations. However, this limitation does not apply if the taxpayer and the Department have agreed in writing to extend the applicable statute of limitations.
In addition, for audits commenced after Sept. 30, 2014, unless otherwise agreed by the Department and the taxpayer, the final assessment must be issued within nine months of the date that the Department provided the taxpayer with the preliminary audit determination. The assessment must be issued within this time frame unless the taxpayer requests a reconsideration of the preliminary audit determination or requests an informal conference.