Pennsylvania Department of Revenue Audit Response — IDR Responses and Position Statement

PENNSYLVANIA DEPARTMENT OF REVENUE AUDIT RESPONSE PACKAGE

TABLE OF CONTENTS

1. Cover Letter — Initial Response to Audit Engagement
2. Power of Attorney and Representation
3. Information Document Request (IDR) Response Template
4. Privilege Log
5. Position Statement on Disputed Adjustments
6. Response to Notice of Proposed Adjustment
7. Records Retention Certification
8. Pennsylvania Practice Notes
9. Sources and References

1. COVER LETTER — INITIAL RESPONSE TO AUDIT ENGAGEMENT

[LAW FIRM / CPA FIRM LETTERHEAD]

Date: [__/__/____]

VIA EMAIL AND U.S. MAIL

[AUDITOR NAME], Revenue Agent

Pennsylvania Department of Revenue — Bureau of Audits

[FIELD OFFICE ADDRESS]

Email: [AUDITOR EMAIL]

Re: [TAXPAYER NAME] — Audit of [TAX TYPE], Periods [DATES]

Audit / Engagement No.: [####]

Account No.: [####]

Dear [AUDITOR]:

This firm represents [TAXPAYER NAME] (the "Taxpayer") in connection with the above-referenced audit. A signed Power of Attorney (PA REV-677) is enclosed. Please direct all future correspondence, document requests, and inquiries to the undersigned.

Pursuant to the Pennsylvania Taxpayers' Bill of Rights Act, 72 P.S. § 3310-101 et seq., we hereby request:

1. A written statement of the audit's scope, periods, tax types, and anticipated duration;
2. The auditor's procedures for conducting in-person interviews, including the Taxpayer's right to record those interviews;
3. The Department's preferred format for electronic records (file types, encryption protocols);
4. A reasonable schedule for production of records and a single point of contact for IDRs;
5. Confirmation that all return information will be maintained in confidence under 72 P.S. § 731.

We propose an opening conference on [__/__/____] at [TIME] at [LOCATION / VIRTUAL]. The Taxpayer requests that all field work be conducted at [LOCATION OF RECORDS] rather than the Taxpayer's primary place of business, to minimize disruption.

Sincerely,

[________________________________]

[ATTORNEY / CPA NAME]

PA Bar No. / PA License No.: [####]

Enclosure: PA REV-677 (Power of Attorney)

cc: [TAXPAYER]; [AUDIT MANAGER]

2. POWER OF ATTORNEY AND REPRESENTATION

The Taxpayer has executed Form REV-677 designating [REPRESENTATIVE NAME] as authorized representative for the following matters:

3. INFORMATION DOCUMENT REQUEST (IDR) RESPONSE TEMPLATE

[LAW FIRM LETTERHEAD]

Date: [__/__/____]

VIA SECURE EMAIL

[AUDITOR NAME], PA Department of Revenue

Re: Response to IDR No. [####] dated [__/__/____]

Taxpayer: [NAME] | Audit No.: [####]

Dear [AUDITOR]:

Enclosed please find the Taxpayer's response to IDR No. [####]. Each numbered request below corresponds to the IDR.

Scope Objections. The Taxpayer objects to Items [####] on the grounds that they (i) seek records outside the audit periods identified in the engagement letter; (ii) seek records not relevant to the tax types under audit; (iii) seek records protected by privilege; or (iv) impose an undue burden disproportionate to the issues. The Taxpayer reserves all rights pending resolution of the scope dispute.

Confidentiality. All produced documents are confidential tax return information protected by 72 P.S. § 731 and the Pennsylvania Taxpayers' Bill of Rights Act. The Department shall not disclose any produced records except as expressly authorized by statute.

Reservation of Rights. This response is made without waiver of any objection, privilege, or right of appeal. The Taxpayer reserves the right to supplement, amend, or correct this response upon discovery of additional information.

Sincerely,

[________________________________]

[REPRESENTATIVE NAME]

Enclosures: [BATES RANGES]

4. PRIVILEGE LOG

5. POSITION STATEMENT ON DISPUTED ADJUSTMENTS

[LAW FIRM LETTERHEAD]

Date: [__/__/____]

Re: Position Statement — [TAXPAYER] Audit, [TAX TYPE] [YEAR(S)]

A. Summary of Disputed Adjustments

B. Issue 1 — [ISSUE TITLE]

Facts. [Recite operative facts material to the issue].

Auditor's Position. [Summarize the proposed adjustment and its asserted basis].

Taxpayer's Position. [Statutory text, regulations, case law, and Department guidance supporting the Taxpayer].

Authority. 72 P.S. § [####]; 61 Pa. Code § [####]; [Case law — e.g., Glatfelter Pulpwood Co. v. Commonwealth, 19 A.3d 572 (Pa. Cmwlth. 2011)]; [Department Bulletin No. ####].

Conclusion. The proposed adjustment should be withdrawn for the reasons stated above.

C. Issue 2 — [ISSUE TITLE]

[Repeat structure for each issue.]

D. Penalty and Interest Abatement

The Taxpayer requests abatement of all proposed penalties under 72 P.S. § [####] because the Taxpayer's reporting position was supported by [reasonable cause, professional advice, prior Department guidance, or an unsettled question of law]. Penalty is not warranted absent a showing of negligence or intentional disregard.

E. Reservation of Administrative Appeal Rights

The Taxpayer reserves the right to file a Petition for Reassessment with the Board of Appeals under 72 P.S. § 9701 within ninety (90) days of the mailing date of any Notice of Assessment, and thereafter to petition the Board of Finance and Revenue under 72 P.S. § 9702.

6. RESPONSE TO NOTICE OF PROPOSED ADJUSTMENT

[LAW FIRM LETTERHEAD]

Date: [__/__/____]

Re: Response to Notice of Proposed Adjustment dated [__/__/____]

Dear [AUDITOR]:

The Taxpayer has reviewed the Notice of Proposed Adjustment ("NOPA") dated [__/__/____] and submits the following response.

Closing Agreement Election (Optional). Pursuant to 72 P.S. § 783 (as amended), the Taxpayer ☐ requests ☐ does not request a closing agreement to resolve the disputed issues at the audit stage.

Statute of Limitations. The Taxpayer ☐ consents ☐ does not consent to extend the assessment limitations period. Any consent to extension must be in writing on Form REV-1175 and is limited to the issues and periods specified.

Sincerely,

[________________________________]

[REPRESENTATIVE NAME]

7. RECORDS RETENTION CERTIFICATION

The Taxpayer certifies that the following records have been maintained in accordance with applicable Pennsylvania law:

8. PENNSYLVANIA PRACTICE NOTES

• Bureau of Audits structure. PA Department of Revenue Bureau of Audits conducts field audits of CNIT, Sales/Use Tax, Employer Withholding, and selected PIT issues. Most audits are conducted at the taxpayer's records location; virtual audits became standard post-2020.
• Taxpayers' Bill of Rights Act. 72 P.S. § 3310-101 et seq. is the controlling charter of taxpayer rights during audit. Key sections include § 3310-202 (notification of intent to audit), § 3310-203 (interviews), § 3310-205 (recording rights), § 3310-401 (representation), and § 3310-501 (penalty abatement standards).
• Records retention. Sales/use tax records must remain WITHIN the Commonwealth absent written authorization from the Bureau of Sales and Use Tax (61 Pa. Code § 34.2(c)). Out-of-state retention without prior approval can support a finding of inadequate records and authorize estimated assessment.
• Estimated assessment / books-and-records penalty. Under 72 P.S. § 7271 and § 7268, the Department may estimate tax where records are inadequate, with the burden on the taxpayer to disprove the estimate. Document retention is therefore foundational to defense.
• Statute of limitations on assessment. Three years from filing for most taxes (72 P.S. § 7348 PIT; § 7258 sales/use; § 7407.4 CNIT). Six years for substantial omissions; unlimited for fraud or non-filing.
• Closing agreements. PA authorized closing agreements at the audit stage in recent reform legislation (Act 53 of 2022; Act 123 of 2024 expansion). A closing agreement is final and conclusive absent fraud or material misrepresentation.
• Confidentiality. Tax return information is confidential under 72 P.S. § 731. Improper disclosure is a misdemeanor and grounds for damages. Mark all responses "CONFIDENTIAL TAXPAYER INFORMATION."
• Privilege. Pennsylvania recognizes the attorney-client privilege and a limited accountant-client privilege (63 P.S. § 9.11a). Federally tax-shelter-protected work product is not separately recognized. Use Kovel engagement letters where CPA analysis must be protected.
• Mediation (post-Act 123). For appeals filed with BFR on or after January 27, 2025, free mediation is available. Consider whether issues are amenable to mediated resolution before BFR briefing.

9. SOURCES AND REFERENCES

• 72 P.S. § 3310-101 et seq. (Taxpayers' Bill of Rights Act)
• 72 P.S. § 731 (Confidentiality of returns)
• 72 P.S. § 7272 (Sales/Use Tax recordkeeping)
• 72 P.S. § 7348 (PIT assessment limitations)
• 72 P.S. § 7407.4 (CNIT records and assessment)
• 72 P.S. § 8211 et seq. (Realty Transfer Tax)
• 72 P.S. § 9701, § 9702, § 9703 (Tax appeals chain)
• 61 Pa. Code Ch. 34 (Registration, Recordkeeping and Returns) — https://www.pacodeandbulletin.gov/Display/pacode?file=/secure/pacode/data/061/chapter34/chap34toc.html
• 61 Pa. Code Ch. 35 (Tax Examinations and Assessments) — https://www.pacodeandbulletin.gov/Display/pacode?file=/secure/pacode/data/061/chapter35/chap35toc.html
• 63 P.S. § 9.11a (Accountant-Client Privilege)
• PA Department of Revenue, Bureau of Audits — Sales and Use Tax Audit Manual — https://www.pa.gov/content/dam/copapwp-pagov/en/revenue/documents/taxlawpoliciesbulletinsnotices/auditmanuals/documents/sut_audit_manual.pdf
• PA Department of Revenue, Tax Appeals — https://www.pa.gov/agencies/revenue/get-assistance/tax-appeals.html
• Form REV-677 (Power of Attorney) — https://www.revenue.pa.gov/

Disclaimer: This template is provided for informational purposes only and does not constitute legal advice. Audit responses can bind the taxpayer in subsequent administrative and judicial proceedings. A Pennsylvania-licensed tax attorney or CPA must review and customize this document before submission.