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By Kris Chacko, Director, Property Tax | April 14, 2021

Preparing for California Personal Property Tax Audits

Every 4 years, the Assessor’s Office comes knocking at the door to schedule their mandatory personal property tax audit. Unless a waiver is filed with the respective County, the next audit cycle will cover tax years 2018 through 2021, with the deadline for completion by June 2022. The assessor is mandated to perform his audit every four years to verify that companies are reporting all their personal property. During this audit, the auditors are to verify costs reported and verify the Fair Market Value of the personal property. A painful or smooth audit is greatly dependent on how the taxpayer prepares.

 

5 things to know before your personal property audit begins

1)

One should begin the process with a review of the prior audit. If an issue of supplies, fixtures or trade level has come up in prior audits, it will come up again. The taxpayer should be prepared to address the issue from the onset.

2)

Reconcile the General Ledger (GL) to the Fixed Asset Detail (FAD) to the Business Property Statement (form 571-L). The auditors begin with the GL. They tie the GL to the FAD and then tie that to the reporting on the 571-L. If a reconciliation was not already completed during the original filing, a new reconciliation should be prepared. One should account for any unreported assets and provide justification for it not being reported (i.e. software, repairs, etc.). Experience has shown that if the reporting reconciles to the GL the auditor will not be inclined to ask further questions.

3)

Know your rights. The auditor will provide a Summary of Audit. The taxpayer is allowed to respond in writing to this audit and this response will become part of the audit.

4)

The audit can result in no change, an offset, an increased assessment, or a reduced assessment. If escapes are to be issued, a “Notice of Proposed Escape Assessment” will be sent. The taxpayer has 10 days to respond to this notice. Once the 10 days have lapsed, a “Notice of Enrollment” is issued. Depending on the county, this notice starts the 60 day window to file a tax appeal. A tax bill will follow. Regardless of your issue with the assessment, the tax bill must be paid to avoid interest and penalties.

5)

In the appeal of an escape assessment, the burden of proof is on the assessor, a distinct advantage for the taxpayer in a tax appeal hearing.

 

The key to surviving the audit is the anticipation & avoidance of conflict. By providing the auditor with a clear path, it addresses both.

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