Delaware Division of Revenue Audit Response Package

DELAWARE DIVISION OF REVENUE — AUDIT RESPONSE PACKAGE

TABLE OF CONTENTS

1. Cover Letter to Auditor
2. Engagement and Authorization
3. Information Document Request (IDR) Response
4. Position Statement / Pre-Assessment Memorandum
5. Records Retention and Privilege Log
6. Audit Activity Log (Internal)
7. Statute-of-Limitations Tracking
8. Closing the Audit
9. Verification
10. Delaware Practice Notes
11. Sources and References

1. COVER LETTER TO AUDITOR

Date: [__/__/____]

VIA U.S. CERTIFIED MAIL — RETURN RECEIPT REQUESTED

(Certified Mail No.: [________________________________])

[AUDITOR NAME], Revenue Auditor
Delaware Division of Revenue — Audit Bureau
[OFFICE ADDRESS]
Wilmington / Dover, DE [ZIP]

Re: Audit of [TAXPAYER NAME] — Tax Year(s) [YYYY]–[YYYY]
Tax Account No.: [________________________________]
Audit Reference: [________________________________]
CONFIDENTIAL TAX INFORMATION — 30 Del. C. § 368

Dear [AUDITOR NAME]:

This letter responds to the Division's audit-engagement letter dated [__/__/____] concerning the [personal income / corporate income / withholding / gross receipts / business license / unclaimed property] tax liability of the above-referenced taxpayer for tax year(s) [YYYY]–[YYYY].

The undersigned represents Taxpayer pursuant to a duly executed Delaware Form 2848-D, a copy of which is enclosed. Please direct all future correspondence, telephone calls, and information requests to the undersigned. Any direct contact with the Taxpayer should be coordinated through this office in advance.

Taxpayer intends to cooperate fully with the Division's lawful inquiry consistent with the Delaware Taxpayer Bill of Rights principles set forth in 30 Del. C. § 528 and related provisions. Specific responses to your initial information request follow.

Respectfully,

[________________________________]

[REPRESENTATIVE NAME], Esq. / CPA

Delaware Bar No. [####] (if attorney)

Telephone: [________________________________]

Email: [________________________________]

Enclosures: Form 2848-D; IDR Response (Section 3 below).

2. ENGAGEMENT AND AUTHORIZATION

3. INFORMATION DOCUMENT REQUEST (IDR) RESPONSE

3.1. Standard Response Template — Per Item

For each numbered IDR item, respond using the following format:

IDR Item No. [____]: [Quote the auditor's request verbatim.]

• Response Status: ☐ Produced in full ☐ Produced in part ☐ Not in possession ☐ Withheld on privilege ☐ Objection — see below
• Documents Produced: Bates Nos. [DE-####] through [DE-####]
• Description: [Describe what is being produced.]
• Method of Production: ☐ PDF via Division secure portal ☐ Encrypted USB (hand delivery) ☐ Certified mail ☐ Onsite inspection
• Objections / Limitations: [State scope, relevance, privilege, or burden objections with supporting authority.]
• Privilege Withheld: ☐ Attorney-Client ☐ Attorney Work Product ☐ Accountant-Client (federally recognized — narrow under Delaware law) ☐ Self-Critical Analysis — see Privilege Log (Section 5).

3.2. Standard Objections (Use Sparingly and With Cause)

3.2.1. Outside scope of audit notice. The request seeks documents for tax year(s) or tax type(s) not identified in the audit engagement letter dated [__/__/____] and exceeds the authority granted under 30 Del. C. § 522.

3.2.2. Beyond statute of limitations. The request seeks records for tax year(s) [YYYY] for which the assessment limitations period under 30 Del. C. § 531 has expired. Without prejudice to that defense, Taxpayer responds [as a courtesy / declines to produce].

3.2.3. Unduly burdensome. Compliance would require [specify hours / cost]. Taxpayer requests a Section [____] meet-and-confer to narrow the request.

3.2.4. Privileged. Documents responsive to this item are withheld on grounds of attorney-client privilege and/or work-product doctrine; see Privilege Log at Section 5.

3.2.5. Not in possession, custody, or control. After reasonable inquiry, Taxpayer does not possess responsive documents. Taxpayer identifies the following potential custodian(s): [NAME / ENTITY].

3.3. Affirmation

I affirm under penalties of perjury that the foregoing IDR responses are complete and accurate to the best of my knowledge, information, and belief, after reasonable inquiry.

[________________________________]

[REPRESENTATIVE / TAXPAYER]

Date: [__/__/____]

4. POSITION STATEMENT / PRE-ASSESSMENT MEMORANDUM

4.1. Executive Summary

Taxpayer respectfully submits this Position Statement in advance of any Notice of Proposed Assessment under 30 Del. C. § 521. For the reasons set forth below, no additional Delaware tax is due for tax year(s) [YYYY]–[YYYY].

4.2. Statement of Facts

4.2.1. Taxpayer is [describe entity type, residency/commercial domicile, operations].

4.2.2. For tax year(s) at issue, Taxpayer filed Delaware Form [200-01 / 1100 / 1100S / W-1 / 9114W / OTHER] reporting:

4.2.3. [Set forth the operative facts: residency, business activity, allocation/apportionment factors, employment relationships, withholding history, gross receipts categories.]

4.3. Issues Presented

• Issue 1: [Frame the issue.]
• Issue 2: [Frame the issue.]
• Issue 3: [Frame the issue.]

4.4. Argument

Issue 1 — [TITLE]

• Applicable law: 30 Del. C. § [____]; [regulation, TIM, or case].
• Application: [Apply law to facts.]
• Conclusion: [State the proper tax treatment.]

Issue 2 — [TITLE]

• Applicable law: [Cite.]
• Application: [Analyze.]
• Conclusion: [State.]

4.5. Statute of Limitations

The three-year limitations period under 30 Del. C. § 531(a) for tax year [YYYY] expired on [__/__/____]. Any proposed assessment for that year is time-barred unless an exception under § 531(b) (substantial omission) or § 531(c) (fraud / unfiled return) applies, neither of which is present here.

4.6. Penalty Defenses

If the Division nonetheless proposes an assessment, Taxpayer asserts reasonable-cause relief from penalties under 30 Del. C. § 535 and the Director's published abatement standards because:

• Taxpayer relied in good faith on [professional advice / published guidance / industry practice / prior audit];
• The legal position taken had substantial authority and was disclosed on the return; and
• Taxpayer has a clean compliance history.

4.7. Conclusion

For the reasons set forth, Taxpayer respectfully requests that the Division close the audit with a "no-change" letter or, alternatively, propose an adjustment limited to [describe limited concession] without penalties.

5. RECORDS RETENTION AND PRIVILEGE LOG

5.1. Records-Retention Statement

Taxpayer maintains the following records relevant to the audit consistent with 30 Del. C. § 522 and Division guidance:

5.2. Privilege Log

6. AUDIT ACTIVITY LOG (INTERNAL)

7. STATUTE-OF-LIMITATIONS TRACKING

8. CLOSING THE AUDIT

8.1. No-Change Letter: Request a written "no-change" closing letter for the file.

8.2. Agreed Adjustment: If conceding any item, document the adjustment in writing, confirm penalty abatement, and obtain a closing agreement.

8.3. Notice of Proposed Assessment: If issued, calendar the 60-day protest deadline under 30 Del. C. § 523 (30 days for withholding) and immediately transition to the protest template (state_income_tax_protest.md).

8.4. Refund or Credit: If the audit identifies an overpayment, file a refund claim within 3 years of return filing or 2 years from payment, whichever is later, under 30 Del. C. § 539.

9. VERIFICATION

STATE OF [_______________]

COUNTY OF [_______________]

I, [TAXPAYER / OFFICER NAME], being first duly sworn, depose and say that I have authority to verify this Audit Response Package on behalf of Taxpayer; that I have read it and the documents produced in response to the IDRs; and that, to the best of my knowledge after reasonable inquiry, the responses are complete and accurate.

[________________________________]

[NAME / TITLE]

Sworn to and subscribed before me this [____] day of [_______________], 20[____].

[________________________________]

Notary Public

(My Commission Expires: [_______________])

10. DELAWARE PRACTICE NOTES

• Auditor authority. Under 30 Del. C. § 522 the Director and authorized auditors may examine books, papers, records, and witnesses; subpoena power is limited and must be exercised through formal process.
• Confidentiality. Tax information is confidential under 30 Del. C. § 368; mark all submissions accordingly. Unauthorized disclosure is a misdemeanor.
• Taxpayer Bill of Rights principles. Although Delaware does not codify a unified "Taxpayer Bill of Rights" statute identical to IRC § 7803(a)(3), 30 Del. C. § 528 and the Division's published procedures protect taxpayers from improper assessment of mathematical/clerical errors and require fair pre-assessment process. The Division publishes Technical Information Memoranda (TIMs) reflecting these standards.
• Power of attorney. Delaware Form 2848-D is the proper vehicle. Federal Form 2848 is not automatically honored.
• Statute of limitations. Generally 3 years from the filing date (§ 531(a)); 6 years for omission exceeding 25% of gross income; no limit for fraud or non-filing. Consents to extend must be in writing and signed before SOL expiration.
• Records retention. Delaware does not specify a single retention period in the statute; the Division generally requires records "as long as their contents may become material to the administration of any tax" (parallel to IRC § 6001). Seven (7) years is the prudent minimum.
• Unclaimed property exposure. Many Delaware audits originate as unclaimed-property examinations under 12 Del. C. Chapter 11. These are administered by the Office of Unclaimed Property and follow distinct procedures (Voluntary Disclosure Agreements, SOS-VDA program). Do not commingle responses.
• Privilege. Delaware recognizes attorney-client and work-product privileges; the federal IRC § 7525 accountant privilege does NOT apply to state tax matters in Delaware. Engage counsel early to preserve privilege over CPA work product.
• Penalty matrix. Failure-to-file and failure-to-pay penalties under 30 Del. C. § 535; interest under § 533 at the federal underpayment rate plus 0.5% per month.
• No state sales tax. Delaware imposes no general sales/use tax. "Sales tax" audits are typically gross receipts / occupational license audits under 30 Del. C. Chapters 21–29 (use the gross-receipts protest template for those disputes).

11. SOURCES AND REFERENCES

• Delaware Division of Revenue — https://revenue.delaware.gov/
• Tax Appeal Process — https://revenue.delaware.gov/tax-appeal-process/
• Forms & Instructions (Form 2848-D) — https://revenue.delaware.gov/business-tax-forms/
• 30 Del. C. Title 30 (full text) — https://delcode.delaware.gov/title30/title30.pdf
• 30 Del. C. Chapter 5, Subchapter III (Procedure & Administration) — https://delcode.delaware.gov/title30/c005/sc03/index.html
• 30 Del. C. § 522 (Examination Authority) — https://delcode.delaware.gov/title30/c005/sc03/index.html
• 30 Del. C. § 528 — https://law.justia.com/codes/delaware/title-30/chapter-5/subchapter-iii/
• 30 Del. C. § 531 (Limitations on Assessment) — https://law.justia.com/codes/delaware/title-30/chapter-5/subchapter-iii/section-531/
• 30 Del. C. § 368 (Confidentiality) — https://delcode.delaware.gov/title30/c003/index.html
• Delaware Office of Unclaimed Property — https://unclaimedproperty.delaware.gov/
• IRS Recordkeeping for Businesses (parallel guidance) — https://www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records

Disclaimer: This template is for informational purposes only and is not legal or tax advice. A Delaware-licensed attorney or CPA must review and adapt it before use. Improper audit responses may waive defenses, expand scope, extend the limitations period, or compromise privilege.