Georgia Department of Revenue Individual Audits: Discovery Unit Explained

The Georgia Department of Revenue’s Discovery Unit ensures tax compliance among individuals, a critical component of the state’s revenue system. Individual audits can be intimidating, but understanding the process and preparation requirements can help taxpayers navigate them efficiently.

Role of the Discovery Unit

The Discovery Unit identifies discrepancies and enforces compliance with Georgia tax laws. Using advanced data analytics and cross-referencing techniques, the unit examines tax returns for inaccuracies. By comparing taxpayer data with third-party information from financial institutions, employers, and government agencies, the unit can pinpoint inconsistencies that may require further review. For instance, significant discrepancies between reported income and bank statements or employer records often warrant closer scrutiny.

The unit also educates taxpayers on compliance requirements through outreach and informational resources. This proactive approach helps reduce errors in tax filings and fosters a cooperative relationship between taxpayers and the department. Understanding common mistakes can help taxpayers file accurate returns and avoid triggering audits.

Triggers for an Individual Audit

Several factors can prompt an individual audit in Georgia. A primary trigger is a mismatch between reported income and third-party documents like W-2s or 1099s. Taxpayers whose returns show substantial deviations from industry norms or who report unusually high deductions or credits may also face scrutiny. For example, claiming excessive charitable donations without adequate documentation or improperly reporting complex transactions, such as cryptocurrency, can attract attention.

High-income individuals and self-employed taxpayers often undergo additional scrutiny due to the complexity of their financial situations. Those in cash-heavy businesses or industries with higher risks of income misreporting are also more likely to be audited.

Notification and Response Requirements

Taxpayers selected for an audit receive an official notification via mail, outlining the scope of the audit, relevant tax years, and issues under review. The letter includes deadlines and the auditor’s contact information. It is essential to review the notification carefully and begin gathering relevant financial records, such as income statements and receipts for deductions, to respond promptly. Typically, taxpayers are required to provide the requested documentation within 30 days of the notification date.

In cases where additional time is needed, taxpayers can request an extension in writing before the original deadline, citing valid reasons. Extensions are granted at the Georgia Department of Revenue’s discretion. Maintaining open communication with the assigned auditor can help facilitate a smoother process.

Documentation Requests

Audits often involve detailed documentation requests requiring taxpayers to substantiate their tax return entries. Commonly requested records include receipts, invoices, and contracts supporting deductions or credits. For business owners, this may extend to ledgers, financial statements, and depreciation schedules. Adhering to accounting standards, such as GAAP, and understanding relevant tax codes can help ensure documentation meets requirements.

Thorough documentation is critical to the audit’s outcome. Taxpayers should keep organized records year-round to minimize complications during an audit.

Examination Outcomes

Audits can result in a few possible outcomes. If the auditor finds that the taxpayer’s records fully support their tax return, the audit is closed with no changes. This highlights the importance of accurate documentation. Taxpayers receiving a no-change determination will receive written confirmation.

If discrepancies are identified, the auditor issues a proposed assessment detailing adjustments to the return, including additional taxes owed, interest, and penalties. Under Georgia law, interest accrues at 1% per month on unpaid taxes, and penalties range from 5% to 25% of the liability, depending on the infraction. Taxpayers who agree with the assessment must pay by the specified deadline to avoid further penalties.

For those who disagree with the findings, there are formal avenues for challenging the assessment.

Procedures for Disagreements

Taxpayers disputing audit findings can request an informal conference with the auditor’s supervisor. This meeting allows them to present additional evidence or clarify misunderstandings. Proper preparation for this step, including organizing relevant documentation and clearly articulating objections, is critical. Many disputes are resolved at this stage.

If the informal conference does not resolve the issue, taxpayers can file a formal appeal with the Georgia Tax Tribunal or the Office of State Administrative Hearings. Appeals must be submitted within 30 days of receiving the final assessment notice and include detailed objections and supporting evidence. The tribunal process is quasi-judicial, offering a less formal alternative to traditional courts. Taxpayers can represent themselves or hire legal counsel or tax professionals to advocate on their behalf.

Appeals can be time-consuming and carry risks, as the tribunal may uphold or increase the original assessment. Consulting experienced tax advisors is essential for assessing the strength of a case and navigating procedural requirements. Meeting deadlines and adhering to procedural rules is critical to avoid dismissal of the appeal.