Can the Nebraska Department of Revenue examine, copy, and keep copies of a taxpayer's records during an audit?

Plain-English summary

This ruling explains the Department of Revenue's power to look at, copy, and keep copies of your records when it audits or reviews your Nebraska tax compliance.

The authority. Chapter 77, article 3 of the Nebraska Revised Statutes gives the Tax Commissioner broad powers to administer and enforce the tax laws:

• § 77-375 -- general authority to require production of records the Commissioner deems necessary;
• § 77-366 -- authority for the Commissioner's personnel to serve a subpoena;
• § 77-376 -- authority to examine and "make memoranda from" the financial records of persons and corporations subject to the tax laws; and
• § 77-369 -- authority to make and publish rules and regulations to carry out these duties.

The conclusion. These powers include the right to copy and retain copies of the records produced, and the Commissioner may act through duly appointed agents (auditors). During an audit the Department may require you to provide records needed to determine your compliance and liability, and its auditors may examine, inspect, and make and keep copies of them.

How it works in practice. Auditors usually make informal written or verbal requests, and are encouraged to cooperate if a taxpayer shows a request is too burdensome -- looking for less costly or less inconvenient alternatives that still meet the audit's purpose. But if a reasonable and proper request is refused, the demand can be put in a formal administrative subpoena issued under the Commissioner's authority. The subpoena spells out the scope of the demand and when, where, and how to comply, and states that noncompliance may result in a penalty. It may be civilly enforced in an action filed in the District Court of Lancaster County by the Attorney General on the Commissioner's behalf.

What counts as a "copy." The term is not restricted to any particular technology, media, or format -- it includes handwritten notes and extracts made by auditors, paper or film photocopies, scanned image files, electronic spreadsheet/data/text files, printouts, and any other established record-keeping method. How you keep your own books and records is considered in deciding what form the Department may require or copy.

What this means for you

If your business is being audited

Expect the Department to be entitled to see, copy, and retain the records relevant to your compliance -- in whatever format is reasonable given how you keep them. Cooperating with informal requests is the norm; if a request seems overly burdensome, raise it and propose a workable alternative, because auditors are encouraged to find one.

If you refuse a records request

A refusal of a reasonable and proper request can escalate to an administrative subpoena, which is court-enforceable in Lancaster County District Court through the Attorney General, and noncompliance may carry a penalty.

Common questions

Q: Can the Department keep copies of my records, or only look at them?
A: It can make and retain copies. The ruling reads the Commissioner's statutory powers to include copying and keeping the records produced.

Q: Does everything have to be on paper?
A: No. "Copy" is technology-neutral -- notes, photocopies, scanned images, electronic data files, and printouts all qualify, and your own recordkeeping format is taken into account.

Q: What happens if I refuse a proper request?
A: The demand can be issued as an administrative subpoena, civilly enforceable in the District Court of Lancaster County by the Attorney General, with a possible penalty for noncompliance.

Citations and references

• Chapter 77, article 3, Nebraska Revised Statutes -- the Tax Commissioner's authority over administration and enforcement of the tax laws.
• Neb. Rev. Stat. §§ 77-375, 77-366, 77-376, and 77-369 -- production of records, subpoena power, examination of financial records, and rulemaking authority, respectively.

Source

• Landing page: https://revenue.nebraska.gov/about/legal-information/revenue-rulings-issued-tax-commissioner
• Original PDF: https://revenue.nebraska.gov/sites/revenue.nebraska.gov/files/doc/legal/rulings/rr990801.pdf

Original ruling text

REVENUE RULING 99-08-1
January 23, 2008
Examination and Retention of Taxpayer Records
Issue:
Whether the Department of Revenue can examine, inspect, make and retain copies of taxpayer
records relevant to an audit or review of the taxpayer’s compliance with Nebraska’s tax laws.
Analysis:
Chapter 77, article 3, of the Nebraska Revised Statutes addresses the authority of the Tax
Commissioner in relation to the administration and enforcement of the State’s tax laws.
Specifically:
Neb. Rev. Stat. §77-375 provides the general authority to require the production of records
deemed necessary by the Tax Commissioner;
Neb. Rev. Stat. §77-366 provides that personnel of the Tax Commissioner may serve a subpoena
to carry out his or her enforcement of the tax laws of this state;
Neb. Rev. Stat. §77-376 permits the Tax Commissioner to examine and “make memoranda
from” any of the financial records of persons and corporations subject to the tax laws of this
state; and
Neb. Rev. Stat. §77-369 further empowers the Tax Commissioner to “make, adopt, and publish
such rules and regulations as he or she may deem necessary and desirable to carry out the
powers and duties imposed upon him or her and the Department of Revenue.”
Conclusion:
Based upon the statutory authority cited above, the Tax Commissioner has determined that these
powers include the right to copy and retain copies of taxpayer records so produced. The Tax
Commissioner may exercise his or her powers through duly appointed agents.
The Tax Commissioner may require taxpayers undergoing an audit or other review to provide
records deemed necessary to make a proper determination of the taxpayer’s compliance with, and
liability under, Nebraska’s tax laws. Department auditors and agents may examine and inspect,
and may make and retain copies of, requested documents for such purposes.
Persons subject to production of records or testimony while under audit or other review typically
comply with informal written or verbal requests for books and records and other documents
requested by auditors, who are the authorized agents of the Tax Commissioner. Auditors and
agents are encouraged to cooperate with a taxpayer who asserts that a request for production is too
burdensome, and to investigate mutually agreeable alternatives that may fulfill the audit purpose at
less expense or inconvenience. However, when an informal, but otherwise reasonable and proper
request is refused, including a request to supply or permit the making of copies of records, then
the demand may be embodied in a more formal written document, known as an administrative
subpoena. The administrative subpoena is issued under the authority of the Tax Commissioner.
The subpoena will clearly outline the scope of the demand for production of records and any other

Nebraska Department of Revenue, P.O. Box 94818, Lincoln, Nebraska 68509-4818

Revenue Ruling 99-08-1

January 23, 2008

Page 2 of 2

requirements, indicating when, where, and how to comply with the demand. It will state that
non-compliance may result in a penalty under law. The subpoena may be civilly enforced in an
action filed in the District Court of Lancaster County by the Attorney General on behalf of the Tax
Commissioner.
For purposes of this ruling, “copy” is a term that is not restricted to a particular technology, media,
or format. It may include hand-entered notes and extracts made by auditors or agents from original
documents, paper or film photocopies of such documents, electronically scanned and stored image
files, electronic spreadsheet or data or text files, printouts of such files, and any other established
method or form of record-keeping and output. The form or method by which books, records, and
documents are kept by the taxpayer will be considered in any determination of the form or method
in which particular records, documents, or other storage of data or information must be supplied
to, or may be copied by, a requesting auditor.
APPROVED:

Douglas A. Ewald
Tax Commissioner
January 16, 2008