What is a Kansas managed audit agreement and what benefit does it give a taxpayer under Senate Bill 226?

Plain-English summary

Sections 1-5 of Senate Bill 226, effective July 1, 2000, authorize a managed audit agreement between the Director of Taxation and an eligible taxpayer for sales and use (compensating) tax.

• A managed audit agreement is an audit plan under which the taxpayer agrees to review its own selected sales and purchase records and determine its own sales and use tax liability.
• An eligible taxpayer is anyone required to file or pay Kansas sales or use tax who has shown a willingness and ability to comply and keeps an acceptable system of records.
• The Director provides written procedural guidelines (audit period, scope, records and sampling, procedures, timelines) and agrees to accept the taxpayer's determinations upon verification when issuing a final determination under K.S.A. 79-3226, preserving the taxpayer's right to an informal conference under K.S.A. 79-3610.
• Participation is voluntary -- the Director selects candidate accounts but cannot require participation -- and the Director may terminate and run a full audit at any time.

The incentive: when the managed audit is completed and verified, interest is computed at half the rate that would otherwise apply, with tax, penalty, and interest due within the time the Director specifies.

What this means for you

If your business is a Kansas sales or use tax filer with good records, a managed audit agreement lets you review your own books to determine any unpaid liability instead of undergoing a full Department audit -- and cuts the interest on what you owe to half the normal rate. It is voluntary, and the Department can end the arrangement and audit you fully if you don't follow through.

Common questions

Q: What is the main benefit of a managed audit agreement?
A: Interest on the liability found is computed at half the rate that would otherwise be imposed once the managed audit is completed and verified.

Q: Can the Department force a taxpayer into a managed audit?
A: No. The Director selects accounts for the program, but taxpayers cannot be required to participate; it is voluntary.

Citations and references

• 2000 Senate Bill 226, Sections 1-5 (managed audit agreements, effective July 1, 2000)
• K.S.A. 79-3226 (final determination of tax liability)
• K.S.A. 79-3610 (informal conference)

Subject

Managed Audit Agreements

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 00-09

Original ruling text

Notice
Notice Number: 00-09
Tax Type: Kansas Compensating Tax; Kansas Retailers' Sales Tax
Brief Description: Managed Audit Agreements per Senate Bill 226 from the 2000 Legislative
Session
Keywords:
Approval Date: 09/19/2000

Body:
Office of the Secretary
Kansas Department of Revenue

                                                 NOTICE 00-09

                                         Managed Audit Agreements

Sections 1-5 of Senate Bill 226, passed by the 2000 Kansas Legislature, relate to “managed audit agreements.” These
provisions are effective July 1, 2000.

The bill authorizes the director of taxation to enter into a managed audit agreement with an eligible taxpayer. A
“managed audit agreement” is an agreement consisting of an audit plan developed by the director and the eligible
taxpayer in which the taxpayer agrees to review selected sales and purchase records and determine its liability for
sales and use taxes. An “eligible taxpayer” is any person who is required to file any return or to pay or remit any
Kansas sales or use tax, and who has demonstrated a willingness and ability to comply with the Kansas tax laws, and
who has maintained an acceptable system of business records.

Under a managed audit agreement the director shall:

· Agree to accept, upon verification and subject to the right to terminate the agreement, the eligible taxpayer’s
determinations for purposes of making a deficiency assessment or otherwise determining the taxpayer’s liability for
the audit period under review;

· provide written procedural guidelines to be included as part of the managed audit agreement, including, but not
limited to: (1) The audit period covered by the managed audit; (2) the general scope of the managed audit; (3) what
records will be examined and what types of sampling techniques will be used; (4) the specific procedures the taxpayer
is to follow in determining any liability; (5) the time period for completion of the managed audit; and (6) the time
period for payment of the tax, penalty and interest;

· review the results of the managed audit with the eligible taxpayer and issue a final determination of tax liability in
the manner prescribed by K.S.A. 79-3226; and

· recognize the taxpayer’s right to request an informal conference in accordance with the provisions of K.S.A. 79-
3610, and amendments thereto.

The new law allows the director of taxation to determine which accounts are to be selected for the managed audit
program; however, taxpayers cannot be required to participate in the managed audit program. Taxpayers who agree to
a managed audit must review and examine their books and records for any unreported liability during the audit period,
and make their computations and records available to the director for verification.

Information provided by the taxpayer as part of the managed audit must be the same information that is required for
any other audit conducted by the director. The director may terminate a managed audit agreement at any time and
conduct a complete audit if the taxpayer fails to fulfill any part of the agreement, or if the director believes the
agreement should be terminated for any other reason.

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When the managed audit is completed and verified by the director, interest is computed at half the rate that would
otherwise be imposed. Payment of the tax, penalty and interest must be made within the time period specified by the
director.

To obtain additional copies of this or any other notice call the Kansas Department of Revenue’s voice mail forms
request line at (785) 296-4937 or download them from our web site: www.ink.org/public/kdor. If you have any
questions about this notice or the managed audit agreement program, please contact our Taxpayer Assistance Center.
Taxpayer Assistance Center
Docking State Office Building
915 SW Harrison St., 1st Floor
Topeka, KS 66625-0001
In Topeka call: 368-8222
Outside Topeka call toll free: 1-877-526-7738
Fax: (785) 291-3614

Date Composed: 09/19/2000 Date Modified: 10/09/2001

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