TTB's Tax Audit Division was created in 2001 and announced to the regulated industries by the Bureau of Alcohol, Tobacco and Firearms (ATF) in its November 2001 Alcohol and Tobacco Newsletter. The announcement described an organization that would audit taxpayers with annual tax liability greater than $250,000 and benefit the industries by leveling the playing field for all taxpayers.
The original plan was to open 10 offices across the nation over a 5-year period. In November of 2002 when the Homeland Security Act created TTB, the Tax Audit Division consisted of a Headquarters' staff of two individuals and a Supervisory Auditor in Greensboro, North Carolina. By November of 2003, the Division expanded to 10 field offices. In addition to the logistics of setting up new offices, the Division interviewed and selected scores of auditors, and training for the new staff was developed and delivered in each of TTB's regulated industries. The Division developed audit programs and policies for the audit approach, which continues to be successfully used during audits.
Today the Tax Audit Division is fully functioning and working every day to complete its mission:
To ensure the proper payment of excise taxes and compliance with laws and regulations in a manner that protects the revenue and prevents unlawful activity in the commodities that TTB regulates.
To plan audits of TTB’s regulated industry members, the Tax Audit Division uses a risk-based approach, which focuses on identified risk indicators but also includes random audits to ensure every taxpayer in the population is available for audit. Additionally, our auditors work with other divisions within TTB to address questions about compliance with federal laws and regulations.
The Division is staffed by professional auditors who came to TTB with different backgrounds including auditors from federal and state government agencies and individuals from outside government. Audits follow Yellow Book Standards, as published by the General Accounting Office, and all our audits are completed using the same set of policies and procedures. Once a taxpayer is selected for audit, an announcement letter is sent several weeks prior to the start of the audit informing the taxpayer of the date of the audit. A full-scope audit includes looking not only at tax returns and monthly reports but also includes examining the company for compliance with the appropriate sections of the Code of Federal Regulations.
TTB auditors also examine internal controls as they relate to the preparation of operating reports and tax returns. A full-scope audit also includes examination of many areas of a taxpayer’s records including general ledgers, inventory and production systems, and automated data processing as they relate to compliance with federal laws and regulations. Most audits do not address product integrity, labeling, or other items under the Federal Alcohol Administration Act as these areas are addressed by other TTB Divisions. Often a Trade Investigator will accompany the audit team to review these areas concurrent with the tax audit. Audits vary in length, depending on many factors including the size of the taxpayer and the condition of the taxpayer’s records.
The Tax Audit Division also works with other areas of TTB and other government agencies, as needed. With its staff of auditors, the Division has the resources to assist in the investigations of apparent underpayment of tax or other areas of a financial nature that relate to the laws and regulations enforced by TTB. This includes examination of many types of financial records and other documentation relating to the manufacture, removal, or sale of a regulated product.