Michigan State Tax Audit Response

MICHIGAN STATE TAX AUDIT RESPONSE

TABLE OF CONTENTS

1. Cover Letter to Audit Bureau
2. Identification of Audit and Taxpayer
3. Assertion of Taxpayer Rights
4. Power of Attorney / Representative Designation
5. Response to Information Document Request (IDR)
6. Position Statement on Proposed Adjustments
7. Records Retention and Production Log
8. Privilege and Confidentiality Reservations
9. Request for Closing Conference
10. Reservation of Rights
11. Verification and Signature
12. Certificate of Service / Mailing
13. Audit-Stage Practice Notes
14. Sources and References

1. COVER LETTER TO AUDIT BUREAU

[DATE]

Michigan Department of Treasury

[AUDIT BUREAU OR FIELD OFFICE ADDRESS — see Treasury Form 2315 for current address]

Attn: [AUDITOR NAME], Auditor

Re: AUDIT RESPONSE — [TAXPAYER NAME]

Audit Number: [NUMBER]

Tax Type(s): [Individual Income / Corporate Income / Sales / Use / Withholding / Other]

Audit Period: [FROM DATE] through [TO DATE]

Dear [AUDITOR NAME]:

This letter responds to your [Notice of Audit / Information Document Request dated MM/DD/YYYY / Audit Determination Letter dated MM/DD/YYYY]. Enclosed please find the items identified in Section 5 below, together with Taxpayer's position statement on the proposed adjustments and request for closing conference.

Taxpayer fully cooperates in this audit and reserves all rights under the Michigan Revenue Act, MCL § 205.1 et seq., and Michigan Department of Treasury Form 2315 (Taxpayer Rights During an Audit).

Sincerely,

[________________________________]

[TAXPAYER OR AUTHORIZED REPRESENTATIVE]

2. IDENTIFICATION OF AUDIT AND TAXPAYER

3. ASSERTION OF TAXPAYER RIGHTS

3.1. Taxpayer asserts and exercises the rights enumerated in the Michigan Taxpayer Bill of Rights and Form 2315, including without limitation:

• The right to professional, courteous treatment by Treasury employees;
• The right to representation by an attorney, CPA, or enrolled agent under a valid Form 151 or Form 3683;
• The right to confidentiality of taxpayer information under MCL § 205.28;
• The right to written notice of any proposed adjustments and the basis therefor;
• The right to a closing conference with the auditor and supervisor;
• The right to appeal any Notice of Intent to Assess via informal conference (MCL § 205.21) and any Final Assessment to the Michigan Tax Tribunal (35 days, MCL § 205.22(1)) or Court of Claims (90 days, MCL § 205.22(1));
• The right to assistance from the Michigan Taxpayer Advocate (MCL § 205.27c).

3.2. Taxpayer requests that all communications regarding this audit be in writing and directed to [representative name and address].

4. POWER OF ATTORNEY / REPRESENTATIVE DESIGNATION

Taxpayer designates the following representative to act on its behalf in this audit. A properly executed Form 151 (Authorized Representative Declaration) or Form 3683 (Power of Attorney) is enclosed.

5. RESPONSE TO INFORMATION DOCUMENT REQUEST (IDR)

5.1. Taxpayer responds to the Information Document Request dated [DATE] as follows:

5.2. Format of production: ☐ Paper ☐ PDF on encrypted USB ☐ Secure file transfer ☐ Michigan Treasury Online (MTO) upload.

5.3. Items not produced and basis:

• [ITEM] — Not in Taxpayer's possession, custody, or control. Records were destroyed in the ordinary course after the four-year retention period under MCL § 205.27a(2). Audit period is outside the limitations window for this item.
• [ITEM] — Records were destroyed in [FIRE / FLOOD / OTHER CASUALTY] on [DATE]; reconstructed records produced as TX-[####].
• [ITEM] — Privilege asserted (see Section 8 and Privilege Log).

5.4. Taxpayer requests a written extension to produce items [NUMBERS] by [DATE] for the reasons stated above.

6. POSITION STATEMENT ON PROPOSED ADJUSTMENTS

6.1. Taxpayer respectfully disputes, in whole or in part, the following proposed adjustments communicated by the auditor on [DATE]:

6.2. Issue 1 — [SHORT TITLE].

• Auditor's position. [Summarize].
• Taxpayer's position. [Summarize, citing MCL §§, regulations, RABs, and case law].
• Supporting documents. Exhibit [A], Bates [####].

6.3. Issue 2 — [SHORT TITLE]. [Repeat structure].

6.4. Issue 3 — [SHORT TITLE]. [Repeat structure].

6.5. Penalty position. Pursuant to MCL § 205.23 and the reasonable-cause standard, no penalty is appropriate because Taxpayer [acted with ordinary business care and prudence / relied in good faith on professional advice / corrected the matter promptly upon discovery].

6.6. Statute of limitations. Items proposed for tax years [YEARS] are barred by MCL § 205.27a(2) absent a federal change, fraud, or false return.

6.7. Sampling and projection challenge (sales/use tax audits). Taxpayer reserves the right to challenge any statistical sample or projection methodology used by the auditor as unrepresentative under Vomvolakis v. Department of Treasury, 145 Mich. App. 238 (1985), and Magic Castle, Inc. v. Department of Treasury, Mich. Tax Trib. (sampling challenges).

7. RECORDS RETENTION AND PRODUCTION LOG

7.1. Pursuant to Mich. Admin. Code R 205.4103, Taxpayer's records include:

• ☐ General ledger and subsidiary ledgers
• ☐ Sales journals and purchase journals
• ☐ Bank statements, canceled checks, credit-card statements
• ☐ Federal income tax returns and supporting workpapers
• ☐ Michigan tax returns (MI-1040, CIT, SUW)
• ☐ Sales/use tax exemption certificates (Form 3372 or equivalent)
• ☐ Resale certificates and direct-pay permits
• ☐ Payroll records and withholding records
• ☐ Depreciation schedules and fixed-asset registers
• ☐ Contracts, leases, invoices, purchase orders
• ☐ Electronic records pursuant to R 205.4105 et seq.

7.2. Production Log:

8. PRIVILEGE AND CONFIDENTIALITY RESERVATIONS

8.1. Taxpayer asserts attorney-client privilege and the work-product doctrine over the materials identified in the attached Privilege Log. Production of any privileged document is inadvertent and shall not constitute a waiver under MRE 502 or applicable Michigan privilege law.

8.2. Taxpayer asserts confidentiality protections of MCL § 205.28 and Internal Revenue Code § 6103 over federal return information shared with the Department.

8.3. Privilege Log:

8.4. Taxpayer does not waive any privilege by producing non-privileged documents responsive to the IDR.

9. REQUEST FOR CLOSING CONFERENCE

9.1. Pursuant to Treasury policy reflected in Form 2315, Taxpayer requests a closing conference with the auditor and audit supervisor before any Notice of Intent to Assess is issued.

9.2. Taxpayer requests that the conference address each proposed adjustment and that the Department issue a written audit work paper package summarizing findings prior to issuance of any assessment notice.

9.3. Preferred format: ☐ In person ☐ Telephonic ☐ Video conference. Preferred dates: [LIST 3 DATES].

10. RESERVATION OF RIGHTS

10.1. Taxpayer reserves the right to supplement this response with additional documents, factual information, and legal argument up to and including the closing conference.

10.2. Taxpayer reserves all rights to:

• Request an informal conference under MCL § 205.21 within sixty (60) days of any Notice of Intent to Assess;
• Appeal any Final Assessment to the Michigan Tax Tribunal under MCL § 205.22(1) within thirty-five (35) days, OR, alternatively, to the Michigan Court of Claims within ninety (90) days;
• Seek refunds under MCL § 205.30;
• Engage the Michigan Taxpayer Advocate under MCL § 205.27c.

10.3. Nothing in this response constitutes an admission of liability or a waiver of any defense.

11. VERIFICATION AND SIGNATURE

I, [TAXPAYER OR AUTHORIZED OFFICER NAME], declare under penalty of perjury under the laws of the State of Michigan that the foregoing response and accompanying records are true, correct, and complete to the best of my knowledge and belief.

Date: [__/__/____]

[________________________________]

[SIGNATURE]

[PRINTED NAME]

[TITLE]

12. CERTIFICATE OF SERVICE / MAILING

I certify that on [__/__/____] I served the foregoing on the Michigan Department of Treasury Audit Bureau, Attn: [AUDITOR NAME], by:

• ☐ U.S. Certified Mail, Return Receipt Requested, Tracking No. [NUMBER];
• ☐ Facsimile transmission to [FAX NUMBER], confirmation No. [NUMBER];
• ☐ Michigan Treasury Online (MTO) upload, confirmation No. [NUMBER];
• ☐ Hand delivery to auditor, receipt acknowledged on attached signed copy.

[________________________________]

[NAME OF SERVER]

13. AUDIT-STAGE PRACTICE NOTES

• Records retention. Maintain records for at least four (4) years from the later of the return due date or filing date per MCL § 205.27a(2). Six (6) years if 25%+ of taxable income or sales is omitted; indefinite for unfiled or fraudulent returns. Mich. Admin. Code R 205.4103 governs general recordkeeping; R 205.4105 et seq. governs electronic records.
• Sampling. Treasury commonly uses statistical sampling in sales/use tax audits. Object to non-representative samples, period selection, and stratification methodology. Request the sample plan in writing and a copy of the projection workpapers.
• Federal RAR. A federal Revenue Agent's Report (RAR) reopens the Michigan limitations period under MCL § 205.27a(3)(d). File Form MI-1040X within 180 days of final federal determination to avoid penalty exposure.
• Successor liability. In asset-purchase contexts, successor liability for the seller's unpaid SUW tax is governed by MCL § 205.27a(1); buyer should obtain a tax clearance letter (Form 5156) before closing.
• Voluntary disclosure. If undisclosed liabilities are identified during audit-prep, evaluate the Treasury Voluntary Disclosure Program, which can limit lookback to four years and waive most penalties — but cannot be used after Treasury has initiated contact.
• Closing conference. Always request a closing conference. Pre-assessment resolution avoids the 60/35/90-day appeal cascade and is the cheapest dispute window.
• Taxpayer Advocate. The Michigan Taxpayer Advocate (MCL § 205.27c) can intervene if the audit deviates from published procedures or causes undue hardship. The Advocate cannot override statutory law but can correct procedural errors.
• Criminal referral risk. Conduct triggering MCL § 205.27 criminal-fraud exposure (false or fraudulent return, intent to evade) requires immediate attorney involvement — do NOT respond to IDRs without counsel where fraud is suspected.

14. SOURCES AND REFERENCES

• MCL § 205.21 (Audit; informal conference) — https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-205-21
• MCL § 205.22 (Appeals) — https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-205-22
• MCL § 205.27 (Penalties; criminal provisions) — https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-205-27
• MCL § 205.27a (Limitations; records retention) — https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-205-27a
• MCL § 205.27c (Taxpayer Advocate) — https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-205-27c
• MCL § 205.28 (Confidentiality) — https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-205-28
• Mich. Admin. Code R 205.4101 et seq. (Recordkeeping) — https://ars.apps.lara.state.mi.us/
• Form 2315, Taxpayer Rights During an Audit — https://www.michigan.gov/-/media/Project/Websites/treasury/Forms/Misc/2315.pdf
• Treasury Audit Page — https://www.michigan.gov/taxes/coll-audit/audit
• Taxpayer Rights and Responsibilities — https://www.michigan.gov/taxes/taxpayer-advocate
• Michigan Taxpayer Advocate Contact — https://www.michigan.gov/taxes/taxpayer-advocate
• Form 151 (Authorized Representative Declaration) — https://www.michigan.gov/taxes
• Form 3683 (Power of Attorney) — https://www.michigan.gov/taxes
• Form 5156 (Request for Tax Clearance) — https://www.michigan.gov/taxes
• Fradco, Inc. v. Department of Treasury, 495 Mich. 104 (2014)
• Vomvolakis v. Department of Treasury, 145 Mich. App. 238 (1985)

Disclaimer: This template is provided for informational purposes only and does not constitute legal advice. An attorney or CPA licensed in Michigan must review and customize this response before submission. Statements made during a Michigan tax audit may have civil and criminal consequences. Verify all citations, deadlines, and Treasury procedures before use.