From time to time, the Department of Revenue audits taxpayers and businesses. We do this to find out if people are paying what they owe. We also examine if folks are eligible for discounts and other benefits received, like the Homestead Exemption.
Most taxpayers and businesses in Philadelphia pay their taxes on time, and meet the requirements of assistance programs; a few unfortunately don’t. Audits help to keep Philadelphia taxes and assistance programs fair for everyone.
Jeffry Schott is the Director of Tax Enforcement & Analysis. He joined the Department of Revenue in 2018, helping increase audit collections since then. We asked him to explain how audits work, and what people can expect when they’re audited.
What is an audit, and why does Revenue perform them?
An audit is a sometimes random, sometimes deliberate, review of taxpayers who are registered to pay business taxes, or enrolled in assistance programs. The goal is to ensure that businesses are tax compliant, and that program participants are truly eligible.
Receiving an audit letter doesn’t automatically mean we think you’ve done something wrong. In short, audits are a way to keep the system fair for the large majority of taxpayers who are doing the right thing.
Who does Revenue audit?
It’s important to note that anyone can be audited. We conduct audits on all tax types and assistance programs, although some have a higher priority.
I can tell you that it’s not always random, but I can’t reveal specific details about our selection process. I’ll just say that a combination of data indicators, random testing, and complaints from neighbors, all factor into who we select for an audit.
Collections from audits have increased. What’s changed?
In the last three years, we have gotten better at using data to screen audit candidates. The City’s Data Warehouse allows us to cross-check our information against IRS and the Commonwealth of Pennsylvania data. Discrepancies are becoming easier to spot.
So we’re doing a better job of finding money owed to the City. At the same time, we’ve gotten better at collecting that money. We’ve improved our communication with customers, made it easier for them to pay –either online, over the telephone or in person– and provide affordable, customized agreement options when they can’t pay in full. For people or business who can afford to pay, but don’t, we’ve stepped up enforcement measures like Commercial Activity License revocation and placement with collection agencies.
What do I need to do if I get audited?
The Department of Revenue will clearly explain what steps you need to take when we contact you. In every case we will ask you to provide “valid documents” or other types of records. The documents will help us determine if you are compliant or eligible.
However, audits can be very different depending on the tax type or program.
Can you give some examples of how they are different?
To start, there are three ways you can be audited: a letter in the mail, a field visit, or a request to come to the Municipal Services Building.
The letter can ask you to mail us a copy of your driver’s license, or other valid ID, proving you live in the home you say you live in. And that may be the entire extent of the audit.
If we do a field visit, or request you come to our offices, it’s probably because we want more than just a copy of your license. Maybe we need to see your federal tax returns, or invoices for products and services you’ve sold.
I can’t give an example for every kind of audit, but we will be clear about the steps and documents that are part of the process. If you have questions abut what to provide, call the number on the letter and we can walk you through it. The audit unit has staff members who speak different languages, and I’m confident we can help you, even if English isn’t your first language.
What happens if I don’t respond to an audit letter, or fail to show?
If the audit is for a business tax, a compliance review will be scheduled, and you will receive a written notification for a follow up visit. Our practice is to send at least two, but sometimes more, warning letters in the mail. And eventually we’ll send you a bill.
If you still do not comply, your case will be escalated to the Law Department, which may take legal action. You may have to pay a noncompliance fee. If you are noncompliant a second time, your Commercial Activity License can be revoked. That means you will have to stop business operations until your license is restored.
Who do I contact to get more information about audits?
The Audit Unit will often assign your case to a specific Revenue Examiner. That person’s name, email address and phone number will appear in the letter you receive. You can contact that Revenue staff member with specific questions about your case.
For general questions about the audit process, please email firstname.lastname@example.org or call our business tax hotline: (215) 686-6600.