A corporate steel mill in State X comes to you seeking advice. In the past few years, revenues have declined, and customers have turned to cheaper suppliers overseas. Also, the top accountant was embezzling from the company and did a poor job handling company’s tax filings. The business is requesting help in setting things right and mitigating the losses.

The company has a pending refund claim related to a furnace that was purchased about three years ago. The company holds a “Direct Pay” permit, which allows it to remit sales tax on purchases directly to the State X taxing authority. Under the Direct Pay permit, the company paid the sales tax on the purchase of the furnace. However, the company subsequently filed a refund claim with the State X collector because the furnace was exempt from manufacturing equipment. The refund claim was submitted over a year ago. The only response from the Collector found was a letter requesting supporting documentation. How to advise the company on the way forward? Are there any relevant tax statutes that would need to be researched?

While reviewing the company’s tax filing records on June 25, 2020, a notice was discovered from the Collector that states the following:

FINAL ASSESSMENT BEFORE LEVY AND SEIZURE

Notice Date: April 29, 2020

Tax Type: Corporate Income

Tax Period: FY 2017

Amount Assessed, including Tax, Penalty, and Interest: $74,399

Under State X law, this Assessment will become collectible upon the expiration of 60 days from the date of this Assessment.

There is also find a note from the previous tax adviser that reads: “Called Collector. I spoke to a Customer Service rep “named”. I told her the Assessment was based on adjustments to claimed expenses. When asked if we needed to file an appeal, I said: ‘No, just send the supporting documents.’” There are no other notes related to the Assessment.

1. What concerns would you have, and what advice would you give to the company?
2. Are there any relevant tax statutes that would need to be researched for the direct pay permit and the purchase of the furnace?
3. Would you file an appeal or just submit/resubmit documents to support findings?
4. How will you forestall the tax liability?
5. How do you relate to the liability?