Home.TTB's Tax Audit Division: A New Division for a New Bureau
The Alcohol and Tobacco Tax and Trade Bureau's (TTB's) Tax Audit Division was created in 2001 and announced to the regulated industries by the Bureau of Alcohol, Tobacco and Firearms (ATF) in its November 2001 Alcohol and Tobacco Newsletter. The announcement described an organization that would audit taxpayers with annual tax liability greater than $250,000 and benefit the industries by leveling the playing field for all taxpayers. ATF would benefit from the ability to assert some level of confidence that it was fulfilling its obligation to ensure proper and adequate tax collection.
The original plan was to open 10 offices across the nation over a 5-year period. In November of 2002 when the Homeland Security Act created TTB, the Tax Audit Division consisted of a Headquarters' staff of two individuals and a Supervisory Auditor in Greensboro, North Carolina. By November of 2003, the Division expanded to 10 field offices. In addition to the logistics of setting up new offices, the Division interviewed and selected scores of auditors, and training for the new staff was developed and delivered in each of TTB's regulated industries. The Division developed audit programs and policies for the audit approach, which continues to be successfully used during audits.
Today the Tax Audit Division is fully functioning and working everyday to complete its mission:
"To verify the proper payment of alcohol, tobacco, firearms, and ammunition excise taxes and ensure compliance with laws and regulations by taxpayers in a manner that protects the revenue, protects the consumer, and promotes voluntary compliance."
The Division is staffed by professional auditors who came to TTB with different backgrounds including auditors from Federal and State government agencies and individuals from outside government. From its original mission to audit taxpayers with annual liability greater than $250,000, the mission of the Division has expanded to include smaller taxpayers and manufacturers of non-beverage products. Although the approach taken in auditing these taxpayers is different, the objective is the same—to ensure the proper amount of tax was paid and to educate the taxpayer to help promote voluntary compliance.
To plan audits of TTB's regulated industry members, the Tax Audit Division uses a risk-based approach, which focuses on identified risk indicators but also includes random audits to ensure every taxpayer in the population is available for audit. Additionally, our auditors work with either the Trade Investigations Division or the National Revenue Center to address questions about compliance with Federal laws and regulations.
Audits conducted by the Tax Audit Division follow Yellow Book Standards, as published by the General Accounting Office, and all our audits are completed using the same set of policies and procedures. Once a taxpayer is selected for audit, an announcement letter is sent several weeks prior to the start of the audit informing the taxpayer of the date of the audit. A full-scope audit includes looking not only at tax returns and monthly reports but also includes examining the company for compliance with the appropriate sections of the Code of Federal Regulations. TTB auditors also examine internal controls as they relate to the preparation of operating reports and tax returns. A full-scope audit also includes examination of many areas of a taxpayer's records including general ledgers, inventory and production systems, and automated data processing as they relate to compliance with Federal laws and regulations. Audits do not address product integrity, labeling, or other items under the Federal Alcohol Administration Act. These areas are addressed by other TTB Divisions. Often a trade investigator will accompany the audit team to review these areas concurrent with the tax audit. Audits vary in length, depending on many factors including the size of the taxpayer and the condition of the taxpayer's records.
The Tax Audit Division also works with other areas of TTB and other government agencies, as needed. With its staff of auditors, the Division has the resources to assist in the investigations of apparent underpayment of tax or other areas of a financial nature that relate to the laws and regulations enforced by TTB. This includes examination of many types of financial records and other documentation relating to the manufacture, removal, or sale of a regulated product.
TTB's Tax Audit Division looks forward to a promising future. During 2004, we completed our implementation of Automated Workpapers and a new electronic data-mining tool. We are planning to complete staffing across the country. We are also continuing to develop and update audit programs, training programs, the Audit Manual, and we are creating Audit Guides for each industry to assist auditors in the field. As we approach our second full year of existence, we are well prepared to meet the challenges of the future.
Curtis F. Holshouser
Tax Audit Division (Field Operations)