Amusement Tax Audit Representation

So you just received the dreaded Amusement Tax Audit Notice from The City of Chicago Department of Revenue. What do you do now? Its time to get educated on the process. Its also time to find the proper representation. At Accounting Solutions Ltd, we have successfully handled these audits for the past 25 years. Contact us today for a complimentary consultation.
With that in mind, we have put together the following information. Understanding what is about to happen and how it will happen is half of the battle. Once you understand the process, you may be able to prepare your books and records in a manner that will help you get through one of these cleanly.
Overview of the Process
The City of Chicago Department of Revenue is a small agency of around 50 employees. Given their size, they do not conduct many actual audits. Why is this important?
Audits don’t just happen out of the clear, blue sky. If you have been selected for an examination, its because the Department thinks that something is wrong. Further, they probably believe that if they invest 50 to 100 man hours into auditing your business, they are going to be compensated for their time. Don’t take this lightly. They are coming for a reason.
The Right to Representation
One of the most basic rights that any taxpayer has is the right to representation. You don’t have to do this alone. You not only don’t have to answer any questions, but shouldn’t without adequate representation.
But that is the problem…Adequate Representation. The Department conducts so few audits, in comparison to The Illinois Department of Revenue or The Internal Revenue Service, that there are very few practitioners in the Chicagoland Area who have actually been through enough of these to have the experience necessary to help you. Don’t choose someone who has inadequate experience. The only thing that you will end up doing is paying for their mistakes. Give us a call.
The Examination Process
This is strange because it isn’t like a regular audit. In most instances they are auditing a smaller portion of your sales. If everything you do is subject to Amusement Tax than it is more like a regular audit. But generally if you are selling an Amusement, you are also selling food or liquor. Because it is just a portion of your sales, how can they tie down a number? They can’t use your bank statement deposits because that includes all of your revenues. They can only use your internal documentation for verification.
This is both a blessing and a curse. As long as your documentation matches the returns and the returns were completed correctly, you should be fine. But that is the trick. Documenting everything correctly can be a difficult if not impossible task. Given multiple cash registers, with many of them collecting revenues subject to many of these taxes, it isn’t easy.
Let’s also remember that nothing ever balances to the penny. Your registers are always going to be over or short if someone isn’t stealing.
Time Revisited
Remembering that this department is a money-making organization and that they need to justify their time, whoever is representing you in the audit must be sensitive to this issue. If the department spends too much time on it, then they are going to need to collect something.
There’s a couple of different ways to look at this. If I have an audit that’s clean. One where I can’t see where there is a problem in documentation or tax preparation, then I’m going to organize those files to the best of my ability. I don’t want them spending too much time on anything.
On the other hand, if I have an audit that’s dirty, maybe I don’t organize. Maybe I make it difficult. Why? Because that auditor can only spend so much time on the audit. Maybe, at that point, he doesn’t have the time to find everything.
Statistical Sampling
This is very common. Its the rule rather than the exception. They’re not going to take the time to audit all of your transactions inside all four years of audit period. (They normally open up four years to be audited.) The department will choose a sample month and see if there are any problems. If there are problems inside that month, they will just multiply that amount by the other 47 months, add interest and penalty, and send you a bill. This is of course unfair and unreasonable. In order to collect a tax, they have to prove your culpability. If they only look at one month, they have not exceeded the standard for burden of proof.
On the other hand, if you have computed and properly filed the tax in question, you may want accept the number. Maybe they chose a month where that particular problem in the tax was light? Maybe they are actually offering you a great deal?
Amusement Tax (7510) Basics
1 . Owners, managers and operators of amusements or places where amusements are conducted collect tax from patrons for witnessing or participating in amusements
2. Resellers of tickets pay tax on the markup
9% of charges paid
5% of charges paid if the amusement is held in a space that has a seating capacity greater than 750
3% of charges on satellite TV costs if projected in a Bar or Restaurant type setting
Due on the 15th of the month following when the amusement occurred
Amusement Tax returns are due on August 15th for the preceding fiscal year of July 1st through June 30th. Note: Effective 1/1/2016, all returns must be filed electronically.
City of Chicago Department of Revenue Amusement Tax Audits are no joking matter. Choose your representation wisely. Please contact us today for a complimentary consultation. We would love to help you.
Chris Amundson