Tax Analysts recently obtained the field audit manual of the Maryland Comptroller of Public Accounts. We had submitted a public records request under Maryland law requesting the manual. Initially, the state was willing to release only 55 pages of the 283-page document, claiming that the remainder qualified as an intra-agency memorandum and was therefore exempt from disclosure under GP section 4-344. After Tax Analysts filed suit, the Maryland attorney general’s office determined that the state had a weak case and quickly released the entire document.
It was a win for Tax Analysts and for the public. I’ve written about this many times before -- documents like this should be in the public domain. The taxpaying public has a right to know how the audit process will proceed. The public also has a right to hold Maryland auditors accountable for following the appropriate (and uniform) process for each audit they conduct.Tax Analysts will continue working to secure audit manuals from all 50 states (except for Vermont, which claims it doesn’t have one, but that’s a story for another day).
Having now acquired several state tax department field audit manuals, I am left with some questions. The Maryland audit manual is dated 2004. Does that mean the last time it was updated was 12 years ago? If so, what guidance are auditors receiving for law and policy changes that occurred over the last decade?
There must be other internal documents that state tax authorities use to educate and train auditors on more recent issues. But what if there aren’t? States could use an outdated audit manual to their advantage when auditing returns for current tax years. What if an audit manual says nothing of combined reporting because at the time it was written the state did not permit it, but it’s since been enacted?
An ad hoc approach like that would be exceptionally bad policy, but is potentially a reality in state tax departments. A state tax department official (not in Maryland) once told me it was advantageous for guidance not to be published so the state could take one position with taxpayer A and a different position with similarly situated taxpayer B. In the end, for that official, it was all about the revenue.
I understand that it is difficult and time-consuming to update a document like a field audit manual, but presumably, state tax departments are providing some guidance to auditors on law changes. Formally putting those changes into an audit manual on a regular basis should be part of standard practice so every auditor in a tax department receives the same guidance and can properly – and fairly -- audit taxpayers.