The Minnesota Department of Revenue audits tax returns to ensure accuracy. When you file your return, you are required to provide complete and accurate information. When the department receives your return, we process it, review it and make corrections if necessary. After processing your return, we still may audit it at a later date.
- Audits of existing returns
- Time limits
- The audit process
- Noncontact audits
- If we contact you
- Information we need
- After the audit appointment
- Successful appeals
- Checking subsequent returns for similar errors
- Commissioner Filed Returns (CFR)
- Collection Process
- Minnesota Taxpayer Rights Advocate
Audits of existing returns typically start from one of two information sources:
1. Internal Revenue Service (IRS) Information – Approximately two years after federal tax returns and information returns (ex. Forms W-2, Forms 1099-MISC, etc.) are filed, the IRS compiles a record of federal return information and sends it to the Minnesota Department of Revenue (under authority of Section 6103(d) of the Internal Revenue Code). This may include any processing adjustments (corrections) or audits conducted by the IRS. After receiving this information, your state tax return(s) may be adjusted or selected for audit.
2. Department of Revenue Review – Minnesota also does its own comparison of available data to see if there are any errors, discrepancies or other problems with previously filed state returns.
The Department of Revenue has 3½ years after a return is due or filed, whichever is later, to audit your return.
The time limit to adjust your return can be extended if you:
• amend a return or the IRS adjusts your federal return
• sign an agreement with the IRS to extend the time period to adjust your federal return
• sign an agreement with the department to extend the time period to adjust your state return
• fail to report 25 percent or more of tax on your return
• intentionally understate your tax liability or fraudulently file your return
• other situation may also dictate an extension
Note: There is no time limitation for audits if you have not filed a return.
The Audit Process
If you have been selected for an audit, the assigned auditor will likely contact you for more information. You may also be required to schedule an appointment to meet with the auditor.
Some audits involve only minor problems or errors that can be corrected without a meeting between the taxpayer and a department representative. Common taxpayer errors include:
• The tax reported on returns does not match the tax reported as withheld on Forms W-2
• Failing to file a return when required
If the department discovers discrepancies in a tax return, the return is recalculated using the corrected data. If there is an amount owed as a result of the changes made, a tax order will be sent for the amount owed. In accordance with Minnesota Statutes 270C.40, interest will be assessed from the return’s due date to the notice date on the tax order. A 10 percent penalty may be assessed for negligence or intentional disregard of the rules and regulations under M.S. 289A.60, subd. 5. In addition, a 10 percent penalty may be applied for not filing an amended Minnesota return to report a change that was made to your federal return by the IRS. An amended Minnesota return must be filed within 180 days of receiving a federal audit.
If We Contact You
Once your return(s) have been selected for audit, the Department of Revenue will contact you to either request additional documentation or set up an appointment.
Throughout the audit process, you have the right to have an attorney, accountant or other representation. If another person will appear in your place at a meeting, you must submit an Authorization of Power of Attorney (Form REV184) to the department in advance of the meeting.
If at any time during the meeting you would like to consult with an attorney, accountant or other representative who is not present, you have the right to request that we stop the meeting, but not the audit process. We will give you sufficient time (up to 30 days) to contact your representative and reschedule the meeting. Rescheduling the meeting may require an extension of time to complete the audit of your return. In this event, you and a department representative may sign a waiver to extend the time period for your audit.
If you wish to audio record the interview, you must contact the auditor prior to the meeting.
Information We Need
To help us determine the correct tax for the return(s) we are auditing, we will need to examine any books, papers or records, which may include:
• general ledgers
• canceled checks
• employment tax forms
• any other information we deem necessary
You may refuse to provide the documentation we request. However, failure to provide information will not stop the audit process, and may result in an assessment of more tax than you would owe if we had all of your information.
Note: All information you provide will be kept confidential. However, we may share it with the IRS or other state agencies as provided by law. If you would like your original documentation returned, please request that when submitting the information to us.
After the Appointment
You will be provided with clear and concise explanations of all adjustments to your tax liability.
If you agree with the audit, you must pay the full amount of tax, penalty and interest due within 60 days of the date we notify you. If you are unable to pay in full, the Collection Division will work with you to set up an installment payment plan. If you fail to pay or to set up a payment plan, a late payment penalty and additional interest may be added to your tax liability.
We will provide notification and issue you a check if you are entitled to a refund. However, we are required to reduce your refund if you owe:
• other Minnesota taxes
• debts to another state or county agency
• felony criminal fines or
• delinquent child support payments
If you disagree with the audit, you may appeal informally to the Department of Revenue or formally to the Minnesota Tax Court. An appeal must be filed within 60 days of the date on the audit report. Information concerning your rights and responsibilities regarding the audit and appeal process is included in the tax order sent to you.
If you decide to appeal to the department but you need more time to prepare your appeal, you may request a 30-day extension by writing to us at the address provided on your tax notice.
If changes to your tax liability are based on adjustments by the IRS and the adjustments were successfully appealed, file a Minnesota appeal including all IRS documentation showing that the IRS reversed or altered their original audit.
To get more information concerning federal audits, contact the IRS at 1-800-829-1040.
Checking Subsequent Returns for Similar Errors
If you decide the audit is accurate, you should review returns filed for subsequent tax years to determine if similar errors were made on those returns.
If an error is found, you will need to file an amended return. The amended return (required to be filed electronically using our e-File system) allows you to correct errors made on the original tax returns. If the amended return results in you owing tax, it must to be paid back with interest. Failure to amend erroneous returns may result in an audit. This may result in additional interest and penalties.
Commissioner Filed Returns (CFR)
When it appears that you were required to file a Minnesota tax return and no return was filed, the state may file a CFR to stand in place of your missing return.
Once you have received a CFR, you have two options:
1. Pay the assessment within 60 days to avoid additional penalties and interest. You will be provided a voucher with an envelope to send your payment. If you are unable to pay in full, the Collection Division will work with you to set up an installment payment plan.
2. File a return that shows the correct tax liability within one year of the CFR being filed.
Once a CFR is filed, it becomes the official record of tax you owe. Collection actions may be taken until you either pay the amount in full or file a return indicating that you owe a lesser amount.
If you believe that you are owed a refund, you must file your return within one year of a CFR being issued and within 3½ years from the due date of the return. For example, you file a third quarter 2007 state withholding tax return on June 1, 2011, to replace a CFR that was filed on May 20, 2008. Your return indicates a refund. However, since it was filed on June 1, 2011, you are not entitled to the refund because both time frames have expired. The one-year CFR deadline expired May 20, 2009 and the original filing period expired April 30, 2011 (three and a half years from the return due date).
Your rights during the collection process
Installment payment plans
Minnesota Taxpayer Rights Advocate
The Advocate Office was established in 1990 as a place for taxpayers to receive an independent review of their tax situation, while promoting and upholding the department’s mission of fair and equitable application of the tax laws.
Besides review of specific cases, we participate in the department’s policy committees, lobby for taxpayer issues and propose legislation. We also educate the public about the department’s policies, processes, procedures and Minnesota tax laws.
For more information on your rights, please write to:
PO Box 7335
St. Paul, MN 55107-7335
If you disagree with an assessment made by the Department of Revenue, you have 60 days from the date of the order to file an appeal with the Department of Revenue or in Minnesota Tax Court.
Filing an Appeal to the Department of Revenue
To file an appeal with the Department of Revenue, a written appeal must be filed with the commissioner within 60 days of the notice date of the order. You may also request a 30-day extension in writing to the Department if you need more time to prepare an appeal
The appeal must contain the following information:
• Your name and address
• If a corporation, the state of incorporation and the principle place of business of the corporation
• Your Minnesota identification number or Social Security number
• The tax type involved
• The date
• The tax years or periods involved and the amount of tax involved for each year or period
• The findings in the order that you dispute
• A summary statement that you rely on for each exception
• Your signature or signature of your duly authorized agent
Include any documentation or information which supports your appeal.
If you are appealing an order assessing tax because you have not filed a tax return and you agree that you are required to file a return, the tax return must be included with the appeal.
If the appeal is for an order denying a request for abatement of penalty, provide a detailed explanation of why you believe reasonable cause existed.
If you would like an informal conference with a representative from the Department, make this request in the appeal.
During the time of the appeal, interest will accumulate on any unpaid tax determined to be due.
If another person is acting on your behalf prepares your appeal, attach Form REV-184, Power of Attorney. The person preparing your appeal must sign the appeal.
Appeals should be sent to the address provided in the appeals instructions that are part of the order you are appealing.
If you disagree with the determination of your appeal, you will have an additional 60 days to appeal to the Minnesota Tax Court.
If the order imposes a penalty other than a penalty for late payment of tax or late filing of a return and it is the only item on the order, then an appeal must be directly filed with the Minnesota Tax Court.
Filing an Appeal to the Minnesota Tax Court
A written appeal must be filed with the Minnesota Tax Court within 60 days after the date of the tax order. A 30-day extension may also be requested from the Minnesota Tax Court in writing if you believe there is good cause for the extension.
You can choose to have your case heard in the Regular Division or appeal to the less formal Small Claims Division (if the total of the tax, penalty, and interest in dispute does not exceed $5,000.00). All decisions made in Small Claims Court are final.
Minnesota Tax Court appeal forms are available on the internet at www.taxcourt.state.mn.us or from the Minnesota Tax Court, 245 Minnesota Judicial Center, 25 Rev. Dr. Martin Luther King , Jr. Boulevard, St. Paul, MN 55155 or at the office of the Clerk of District Court in your country. Submit a copy of this order when filing your appeal with the Minnesota Tax Court.
If the adjustments made on an order of assessment are for additional amounts due and you have paid the full amount shown as due, a written claim for refund can be filed within 3 ½ years after the due date of the tax return to which the order relates or one year after the date on the order, whichever is later.
The refund claim must identify the taxpayer, the type of tax or the type of other liability paid, the tax period, the amount of the overpayment, and the grounds on which the refund claim is being made.
Denial of Refund Claims
If a refund claim is denied, either in whole or in part, you can appeal the denial to the Department of Revenue or to the Minnesota Tax Court within 60 days after the date of the denial, or bring an action in the District Court to recover the denied refund amount within 18 months after the date of denial. If an appeal is made to the Minnesota Department of Revenue and is denied, you will have an additional 60 days after the date of denial to appeal to Minnesota Tax Court.