Notified of an Illinois sales tax audit? The auditor will reconstruct your sales. The question is whether the reconstruction is right.
The Illinois Department of Revenue audits restaurants, grocery and liquor stores, retailers, and online sellers by reconstructing sales from purchase invoices, bank deposits, and industry markups, then assessing tax, penalties, and interest on the difference. Reconstructions can overstate sales substantially, and the method is where these audits are won or lost. Our attorneys challenge the method, manage the records, and settle through Fast Track Resolution or the Informal Conference Board when the facts support it.
Ratios that look off to the Department: purchases high relative to reported sales, cash-heavy businesses in targeted industries (restaurants, bars, liquor and grocery stores), tips from former employees or competitors, mismatches with federal returns, and marketplace or online sales that never registered. Some selections are routine by industry.
Several months is typical; a year is not unusual for a multi-location business or one with poor records. The audit period is usually the last three to four years, and the statute can be extended by agreement, which is a decision to make with counsel.
The auditor issues findings and a proposed assessment. You can agree, negotiate, or contest: Fast Track Resolution and the Informal Conference Board for settlement, the Board of Appeals for penalty and interest relief, and the Independent Tax Tribunal for liabilities of 15,000 dollars or more that do not settle. Deadlines run from the notice.
Do not send records before understanding the method. Gather point-of-sale reports, purchase invoices, bank statements, exemption certificates, and prior returns for the period, and have an attorney review them first. Gaps in exemption certificates and unreported use tax on purchases are the two findings we see most often, and both are manageable if addressed before the auditor finds them.
It depends on the number of locations, the years under audit, and whether the case settles at the audit level or goes to the tribunal. In the consultation the attorney reviews the notice and your records and quotes the engagement, so you can weigh the fee against the proposed assessment.
The attorneys who handle Illinois sales tax audits
Sales tax audits are handled by attorneys who appear before the Illinois Department of Revenue regularly.
Andrew Gordon
MANAGING PARTNER
Jennifer Keegan
MANAGING ATTORNEY | TAX CONTROVERSY
What we do in a sales tax audit
We start by understanding the auditor’s method before any records are produced, because the markup assumptions and sampling periods drive the number. Then we manage production so the auditor gets what was requested and nothing that expands the scope, challenge the reconstruction with your actual data, and negotiate the assessment. Where use tax on purchases is added, we review those too. If the audit does not settle, the case goes to the Informal Conference Board, the Board of Appeals for penalties, or the Independent Tax Tribunal.
If the auditor has raised a point-of-sale “zapper” or suggested intent, stop and call an attorney before the next meeting; those audits become criminal referrals.
Results in Illinois sales tax matters
