News and Insights

California Board of Equalization Approves Some Revisions in Audit Manual

Tax Development Jan 07, 2000

The five elected members of the California Board of Equalization voted to approve many revisions to the Audit Manual at a public meeting in Sacramento on January 4, 2000. The Audit Manual specifies procedures that must be followed in sales and use tax audits of business taxpayers by the Board's field auditors.

These changes were approved after four months of discussion between the Board's professional staff and interested parties, such as the American Electronics Association and the Motion Picture Association of America. Dr. Will Yancey was one of the most active interested parties and submitted a number of written recommendations that were adopted.

Creating a level playing field for taxpayers and auditors was a major theme of Dr. Yancey and the other interested parties. In the past, many California auditors focused on finding tax underpayment errors and projecting tax assessments. In many places the Audit Manual was not clear on the treatment of tax overpayments. When tax overpayments were found in an audit sample, auditors often refused to project those overpayments. Taxpayers had to appeal to audit supervisors, appeals officers, and the elected members of the Board to allow the overpayments to be projected in audits or refund claims. The revised Audit Manual requires auditors to treat overpayments and underpayments equitably. Now, auditors must follow the same criteria in deciding whether to project overpayments as they do in projecting underpayments. The Board will educate its field auditors and reviewers on these changes.

The Audit Manual revision process will continue throughout the year 2000. Every chapter of the Audit Manual will be reviewed and many more changes are likely to be approved. For more information on the Audit Manual and tax audit sampling in California, contact Dr. Roger Pfaffenberger, Practice Leader of Ryan & Company's Audit Sampling Practice by phone at 972.934.0022 or by e-mail.