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The Ohio Department of Taxation's Audit Division has recently instituted a new method of applying penalty in an effort to be more uniform in its application of penalty on audits. Audits will now have the maximum statutory penalty automatically applied to all audits. Previously, the Audit Division started the audit with no penalty due, but used a penalty worksheet that calculated the amount of penalty that a taxpayer earned based on numerous factors including (but not limited to): prior registration, tax compliance, prior audit improvement and audit cooperation.
Statutory penalties vary depending on the type of tax and, in the case of trust taxes, whether tax was collected and not remitted. The chart below highlights some of the penalties the Audit Division could apply:
The new penalty method will be used for all new audits, as well as audits where the penalty worksheet has not been introduced to the taxpayer.
Based on this new penalty method, businesses should keep in mind that the Department provides avenues to address unpaid tax without the payment of penalty. First, the voluntary disclosure program provides for a limited-look back period for the tax and no penalty for any tax remitted through the program. Second, managed or participatory audits are offered for sales, use and CAT, which allow taxpayers to eliminate penalty from the audit when the taxpayer completes all or a substantial portion of the audit. Businesses should also keep in mind that penalties may be reduced by the Department throughout the appeal process as well.
As a result of this new policy, taxpayers are likely to face higher penalties upon audit. Our professionals have been successful in obtaining penalty relief for clients through the voluntary disclosure program, in conducting managed and participatory audits and in dealing with the Department in the appeal process. Please contact John Trippier or any other professional at Zaino Hall & Farrin LLC to discuss your state and local tax issues.