EMD Tax Advisor Issue 2020-00

Welcome to the newest edition of the EMD Tax Advisor.  While some feel that the IRS may currently be vulnerable with all of their recent scrutiny, we have seen that they have not slowed down their income tax audits and pursuit of tax assessments.  Most corporate tax departments are not equipped to handle additional projects, such as amended state income tax returns that are legally required as a result of federal income tax audit changes.  State filing deadlines are tight and each state has its own specific reporting requirements.  Therefore, it becomes very burdensome and not cost-effective to handle in-house. 

In most cases, outsourcing is the prudent choice.  When interviewing any tax services provider to outsource this project, be sure to ask if they are experienced in performing state income/franchise tax reverse audit reviews in conjunction with the preparation of amended state income tax returns.  If not, you should find one that is experienced in both.  Once you find one with this multi-function expertise, ask if they are willing to conduct the state income/franchise tax reverse audit review on a contingency basis.  If not, you should find one that is confident enough in their expertise to accept that project risk.  In addition, ask if they perform the work themselves domestically or whether they utilize foreign entities.  For various reasons, you do not want a tax services provider that is subcontracting work out to other specialty tax firms and/or one that performs the work outside of the United States.  And finally, make sure they will actually sign the amended state tax returns as paid preparers.  For example, at EMD, all of our tax services are performed domestically by EMD's Team and we proudly sign-off on all of our work.

Once you find a qualified tax services provider that meets the above criteria, you are on the right track.  By choosing the right one, you have a realistic opportunity to have all of your amended state income tax returns prepared for a "net" zero cost.  You may even increase your budget in the process, which is always a goal EMD strives to reach for our clients.  Refer to our website for a testimonial from one of our many clients that have experienced this first hand. 

Example: As a result of its recent federal audit, ABC company is required to prepare 250 state income tax returns for which it is charged $600/return by its outside tax services provider (250 returns x $600 = $150,000).  During the reverse tax audit, the tax services provider discovers a refund opportunity that generates a $600,000 refund, for which the tax provider charges a 33% contingency rate ($600,000 x 33% = $198,000).

Results: ABC company received all of the 250 amended state income tax returns prepared for "net" zero cost and increased its budget by $252,000 ($600,000 refund - $150,000 tax return fee - $198,000 contingency fee).

Of course, results vary, but you get the idea.  If you choose the proper tax services provider, they can produce even better results.  Often times they may also discover exposure items, which today may be just as important as a refund!  The important message here is that you can turn a stressful and burdensome situation into a very favorable opportunity with the correct choice.

For specific questions or additional information regarding this newsletter, please call EMD at (401) 434-6623 or e-mail us at

As always, thanks for the opportunity to be of service!

Respectfully yours,


IRS Circular 230 Disclosure: Any federal tax advice contained in this newsletter, if any, is not intended or written to be used and cannot be used as a covered opinion described in Treasury Department Circular 230 and therefore cannot be relied upon to avoid any tax penalties under the Internal Revenue Code or to support any federal tax transaction.