South Carolina State Tax Audit Response

SOUTH CAROLINA STATE TAX AUDIT RESPONSE — IDR AND POSITION STATEMENT

TABLE OF CONTENTS

1. Cover Letter — Auditor Correspondence
2. Audit Identification
3. Statement of Cooperation and Reservation of Rights
4. Power of Attorney and Communication Protocol
5. Response to Information Document Request
6. Privilege and Confidentiality
7. Position Statement on Proposed Adjustments
8. Penalty Defenses and Reasonable Cause
9. Records Retention Statement
10. Taxpayer Rights Invoked
11. Conference and Resolution Request
12. Verification, Signature, and Service
13. Schedule of Documents Produced
14. South Carolina Practice Notes
15. Sources and References

1. COVER LETTER — AUDITOR CORRESPONDENCE

[DATE]

Via [MyDORWAY upload / Certified Mail RRR / SecureDrawer / Email per SCDOR direction]

[SCDOR AUDITOR NAME]
[SCDOR DIVISION — e.g., Field Audit / Office Audit / Discovery & Compliance]
South Carolina Department of Revenue
[STREET ADDRESS]
[CITY, STATE ZIP]

RE: [TAXPAYER LEGAL NAME] — SCDOR Audit
Audit / Case No.: [________________________________]
Tax Type(s): [Income / Sales & Use / Withholding / Admissions / Other]
Tax Period(s) Under Examination: [__/__/____] through [__/__/____]
SCDOR File / Account No.: [________________________________]
Response to Information Document Request No.: [____] dated [__/__/____]

Dear [AUDITOR NAME]:

This letter responds on behalf of [TAXPAYER LEGAL NAME] ("Taxpayer") to the Information Document Request referenced above (the "IDR") and provides Taxpayer's preliminary position on the proposed adjustments outlined in the Department's [audit narrative dated __/__/____ / preliminary findings letter dated __/__/____].

Taxpayer is committed to a constructive and timely resolution of this examination, while reserving all rights, defenses, and privileges available under South Carolina law.

2. AUDIT IDENTIFICATION

2.1. Taxpayer. [TAXPAYER LEGAL NAME], a [entity type — corporation, LLC, partnership, sole proprietor, individual] with principal place of business / residence at [ADDRESS].

2.2. Federal Identifier. SSN/FEIN: [XXX-XX-XXXX or XX-XXXXXXX].

2.3. SCDOR Identifier(s). Account No. [____]; Retail License No. [____] (if applicable).

2.4. Periods Under Examination. [List specific tax periods covered by the audit notice and any expansion notices.]

2.5. Tax Type(s). [Specify — Individual Income, Corporate Income, Sales & Use, Withholding, Admissions, etc.]

2.6. Audit Posture. [Field audit / Office audit / Desk review / Discovery & Compliance referral.]

2.7. Audit Notices Received. [Itemize: Notice of Audit dated __/__/____; engagement letter dated __/__/____; expansion notices dated __/__/____; IDRs Nos. __ through __.]

3. STATEMENT OF COOPERATION AND RESERVATION OF RIGHTS

3.1. Cooperation. Taxpayer will cooperate in good faith with the Department, will produce responsive documents within Taxpayer's possession, custody, or control, and will make appropriate personnel available for interviews subject to advance notice and reasonable scope.

3.2. Reservation of Rights. Taxpayer expressly reserves all rights, defenses, and privileges, including without limitation:

• the right to file a written protest of any Notice of Proposed Assessment within ninety (90) days under S.C. Code § 12-60-450;
• the right to a contested case hearing before the South Carolina Administrative Law Court ("ALC") under S.C. Code § 12-60-460;
• all defenses based on the periods of limitation under S.C. Code § 12-54-85;
• attorney-client privilege, work-product doctrine, and accountant-client privilege to the extent recognized by South Carolina law;
• the right to amend, supplement, and clarify any document, schedule, or position; and
• all defenses available under the South Carolina Taxpayers' Bill of Rights, S.C. Code § 12-58-10 et seq.

3.3. No Waiver. Production of documents or other communication in this audit shall not be deemed a waiver of any right, defense, or privilege.

3.4. No Extension Without Consent. Taxpayer does not consent to any extension of the period of limitation under § 12-54-85 except by separate written waiver, executed by an authorized representative of Taxpayer.

4. POWER OF ATTORNEY AND COMMUNICATION PROTOCOL

4.1. Power of Attorney. [ATTORNEY/CPA NAME], [SC Bar / SC CPA License No.], of [FIRM] is duly authorized to represent Taxpayer pursuant to SCDOR Form SC2848 (Power of Attorney and Declaration of Representative), a copy of which is attached as Exhibit [__].

4.2. Direct Communications to Counsel. Pursuant to S.C. Code § 12-58-90 and the Power of Attorney, Taxpayer respectfully requests that all substantive audit communications be directed to undersigned counsel and not to Taxpayer or its employees absent prior coordination.

4.3. Interview Protocol. Any interview of Taxpayer's officers, directors, employees, or agents shall be (a) scheduled in advance through counsel; (b) limited to the scope set forth in advance; and (c) attended by counsel. Taxpayer reserves the right to request that interviews be recorded under § 12-58-90.

5. RESPONSE TO INFORMATION DOCUMENT REQUEST

5.1. General Objections. Taxpayer interposes the following general objections to the IDR, which shall be deemed incorporated into each specific response below:

• Overbreadth and Burden. Taxpayer objects to any request that is overly broad, unduly burdensome, or seeks documents not relevant to a fact-of-consequence in the determination of liability for the periods at issue.
• Privilege. Taxpayer objects to any request that calls for the production of attorney-client privileged communications, attorney work product, or materials prepared in anticipation of litigation.
• Confidentiality. Taxpayer objects to any request that calls for the disclosure of confidential commercial information, trade secrets, or third-party personally identifiable information without appropriate protective measures.
• Possession, Custody, or Control. Taxpayer responds based on documents within its possession, custody, or control, and does not undertake to obtain documents held by third parties beyond the scope of S.C. Code § 12-54-100.
• Relevance to Period. Taxpayer objects to any request seeking documents outside the periods covered by the audit notice as expanded.

5.2. Specific Responses.

5.3. Privilege Log. A privilege log identifying any documents withheld on the basis of privilege is attached as Exhibit [__] and conforms to the standards used in South Carolina civil practice (see ALC Rule 21).

5.4. Rolling Production. Documents are produced on a rolling basis. Taxpayer will supplement these responses as additional responsive documents are located.

6. PRIVILEGE AND CONFIDENTIALITY

6.1. Attorney-Client Privilege and Work Product. Communications between Taxpayer and its counsel for the purpose of obtaining or providing legal advice are privileged. Materials prepared in anticipation of litigation, including this audit and any subsequent contested case proceeding, are protected as attorney work product.

6.2. Accountant Engagement under Kovel Doctrine. [If applicable: The non-attorney advisors referenced herein were engaged by counsel pursuant to a Kovel-style engagement letter dated __/__/____ to assist in the rendition of legal advice. Their communications and work product are protected to the extent of that engagement.]

6.3. Confidentiality of Returns. Taxpayer expects the Department to maintain the confidentiality of returns and return information under S.C. Code § 12-54-240 and to limit any third-party information sharing to that authorized by S.C. Code § 12-54-220 (information sharing with IRS and other states).

6.4. Trade Secrets and Sensitive Commercial Information. Documents marked CONFIDENTIAL — TRADE SECRET are produced under the protective treatment afforded by § 12-54-240. Taxpayer requests that any such documents be withheld from any public file or response to a Freedom of Information Act request under S.C. Code § 30-4-40(a)(1).

7. POSITION STATEMENT ON PROPOSED ADJUSTMENTS

7.1. Adjustment No. 1 — [Description]

7.1.1. Department's Position. [Concise restatement.]

7.1.2. Taxpayer's Position. [Counter-statement with citation to S.C. Code, S.C. Code Regs., SCDOR Revenue Rulings, and South Carolina case law.]

7.1.3. Documentary Support. [Cross-reference exhibits.]

7.2. Adjustment No. 2 — [Description]

7.2.1. Department's Position. [Concise restatement.]

7.2.2. Taxpayer's Position. [Counter-statement.]

7.2.3. Documentary Support. [Cross-reference exhibits.]

7.3. Statute of Limitations

7.3.1. Any adjustment proposed for tax periods ending before [__/__/____] is barred by the three-year limitation in S.C. Code § 12-54-85(A). No § 12-54-85(C) (six-year omission), § 12-54-85(D) (no return), or § 12-54-85(E) (fraud) exception applies.

7.3.2. [If applicable: Taxpayer has not executed a written waiver under § 12-54-85(G), and any oral discussion of an extension is not binding.]

8. PENALTY DEFENSES AND REASONABLE CAUSE

8.1. Reasonable Cause and Good Faith. Pursuant to S.C. Code § 12-54-160, penalties may be waived for reasonable cause and absence of willful neglect. Taxpayer relied on [written advice of qualified tax professional / SCDOR Revenue Ruling [##-##] / prior favorable audit determination / ambiguous statute / unanticipated change in law] and exercised ordinary business care and prudence.

8.2. Substantial Authority and Adequate Disclosure. As to any substantial-understatement penalty under S.C. Code § 12-54-155, Taxpayer's position is supported by substantial authority and was adequately disclosed on the return.

8.3. No Negligence or Disregard. Taxpayer maintained books and records in compliance with S.C. Code § 12-54-210 and S.C. Code Regs. § 117-200, and did not negligently or intentionally disregard rules and regulations.

8.4. First-Time Penalty Relief. Taxpayer has a clean compliance history with no penalties asserted in the prior [3] tax years and qualifies for first-time penalty relief consistent with SCDOR practice.

9. RECORDS RETENTION STATEMENT

9.1. Retention Policy. Taxpayer maintains books and records in compliance with S.C. Code § 12-54-210 and S.C. Code Regs. § 117-200. Records are retained for not less than [four (4) years] from the later of the due date of the return or its filing, consistent with the assessment limitation under § 12-54-85.

9.2. Form of Records. Records are maintained in [paper / electronic / hybrid] form. Electronic records are retained in a format reasonably accessible and capable of being produced in a usable form upon request.

9.3. Records Available for Inspection. Books, records, and supporting documents responsive to the IDR are available for inspection at [ADDRESS] during business hours upon reasonable advance notice, or are produced electronically with this response.

9.4. Records Beyond Retention Period. [If applicable: Certain records sought by the IDR predate the retention period and are no longer maintained. Taxpayer has produced all responsive records still within its possession, custody, or control. The Department is precluded from drawing adverse inferences from non-production where the requested records are outside Taxpayer's lawful retention obligation.]

10. TAXPAYER RIGHTS INVOKED

Pursuant to the South Carolina Taxpayers' Bill of Rights, S.C. Code § 12-58-10 et seq., Taxpayer expressly invokes and exercises the following rights:

10.1. Fair, Prompt, and Courteous Service. S.C. Code § 12-58-20.

10.2. Right to Representation. S.C. Code § 12-58-90 — the right to have an attorney, accountant, or other designated representative present at any interview, conference, or hearing.

10.3. Right to Recording. S.C. Code § 12-58-90 — the right to make an audio recording of any in-person interview, with reasonable advance notice.

10.4. Information Regarding Rights. S.C. Code § 12-58-90 — the right to be informed in advance of an interview of the rights guaranteed under the Bill of Rights.

10.5. Refund Protection. S.C. Code § 12-58-160 — refunds may not be denied or delayed because of an audit of an unrelated tax or period.

10.6. Taxpayer Rights Advocate. S.C. Code § 12-58-30 — Taxpayer reserves the right to seek the assistance of the Taxpayers' Rights Advocate in the event of unresolved problems, hardship, or treatment inconsistent with the Bill of Rights.

10.7. Confidentiality. S.C. Code § 12-54-240 — Taxpayer expects strict confidentiality of all return information.

11. CONFERENCE AND RESOLUTION REQUEST

11.1. Pre-Assessment Conference. Taxpayer requests a conference with the auditor and the auditor's supervisor before issuance of any Notice of Proposed Assessment to discuss any unresolved adjustments.

11.2. Closing Conference. Taxpayer requests a closing conference upon completion of fieldwork to confirm the proposed adjustments and supporting workpapers.

11.3. Settlement Authority. [If applicable] Taxpayer is prepared to discuss resolution under SCDOR's compromise authority for issues with substantial doubt as to liability or collectibility.

11.4. Continued Dialogue. Counsel is available at the contact information below for follow-up requests, supplemental productions, and additional interviews.

12. VERIFICATION, SIGNATURE, AND SERVICE

I, [SIGNATORY NAME], [TITLE] of [TAXPAYER LEGAL NAME], declare under penalty of perjury under the laws of the State of South Carolina that I have reviewed the foregoing audit response and the documents being produced in conjunction therewith, and that the factual statements set forth herein are true and correct to the best of my knowledge, information, and belief.

Date: [__/__/____]

[________________________________]

[SIGNATORY NAME], [TITLE]

[TAXPAYER LEGAL NAME]

Submitted by counsel:

[LAW FIRM]

By: [________________________________]

[ATTORNEY NAME], S.C. Bar No. [####]

[STREET ADDRESS]

[CITY, STATE ZIP]

Telephone: [NUMBER]

Email: [EMAIL]

13. SCHEDULE OF DOCUMENTS PRODUCED

14. SOUTH CAROLINA PRACTICE NOTES

• Audit lifecycle. The typical SCDOR audit lifecycle is: (1) Notice of Audit and engagement letter; (2) IDRs and fieldwork; (3) auditor narrative / preliminary findings letter; (4) closing conference; (5) Notice of Proposed Assessment under S.C. Code § 12-60-420; (6) 90-day written protest under § 12-60-450; (7) Department Determination within one year under § 12-60-450(E); (8) request for ALC contested case under § 12-60-460 within 30 days; (9) ALC final order; (10) appeal to South Carolina Court of Appeals.
• Records retention. S.C. Code § 12-54-210 and S.C. Code Regs. § 117-200 require maintenance of books and records sufficient to substantiate returns. Practical retention should match the longest applicable assessment limitation under § 12-54-85: typically four (4) years to be safe; six (6) years where omitted income may exceed 20% of gross income; and indefinitely where no return was filed or fraud is alleged.
• Privilege gap. Federal IRC § 7525 federally authorized tax practitioner privilege does not necessarily apply in state proceedings. Route privileged advice through a Kovel-style engagement letter with a South Carolina-licensed attorney; assume non-attorney communications are discoverable.
• Confidentiality and information sharing. Returns are confidential under § 12-54-240, but SCDOR may share information with the IRS and reciprocating states under § 12-54-220. Confidentiality does not automatically attach to documents produced to other state agencies.
• Preserve protest deadlines. Cooperation in an audit does not toll the 90-day protest deadline under § 12-60-450(A). Calendar the deadline from the date of any Notice of Proposed Assessment.
• Statute-of-limitations waivers. Do not execute a waiver of the limitations period under § 12-54-85(G) without weighing it against the Department's likely positions; written waivers must be specific in scope and duration.
• Taxpayers' Rights Advocate. S.C. Code § 12-58-30 establishes the Taxpayers' Rights Advocate; engagement is appropriate where standard channels have not produced timely or fair treatment.
• Form usage. Use SCDOR Form SC2848 for Power of Attorney; produce documents through MyDORWAY where possible to maintain a date-stamped record.
• Adjustments outside audit scope. SCDOR may expand the audit scope to additional tax types and periods. An expansion notice resets the calendar but does not enlarge the limitations period under § 12-54-85.
• Federal RAR conformity. A federal RAR triggers a 180-day reporting obligation under S.C. Code § 12-6-4910(F) / § 12-6-5020; failure to report extends the limitations period under § 12-54-85(F).

15. SOURCES AND REFERENCES

• S.C. Code Title 12, Chapter 54 (Uniform Method of Collection and Enforcement) — https://www.scstatehouse.gov/code/t12c054.php
• S.C. Code § 12-54-85 (Periods of limitation) — https://www.scstatehouse.gov/code/t12c054.php
• S.C. Code § 12-54-100 (Examination of records)
• S.C. Code § 12-54-200 (Bond / access to records)
• S.C. Code § 12-54-210 (Books and records) — https://law.justia.com/codes/south-carolina/title-12/chapter-54/section-12-54-210/
• S.C. Code § 12-54-220 (Information sharing with other states / IRS) — https://law.justia.com/codes/south-carolina/title-12/chapter-54/section-12-54-220/
• S.C. Code § 12-54-240 (Confidentiality)
• S.C. Code Title 12, Chapter 58 (Taxpayers' Bill of Rights) — https://www.scstatehouse.gov/code/t12c058.php
• S.C. Code § 12-58-90 (Right to representation; recording) — https://law.justia.com/codes/south-carolina/title-12/chapter-58/section-12-58-90/
• S.C. Code Title 12, Chapter 60 (Revenue Procedures Act) — https://www.scstatehouse.gov/code/t12c060.php
• S.C. Code Regs. § 117-200 (Recordkeeping) — https://www.law.cornell.edu/regulations/south-carolina/R-117-200
• SCDOR Form SC2848 (Power of Attorney) — https://dor.sc.gov/forms
• SCDOR Form C-245 (Protest Pursuant to Revenue Procedures Act) — https://dor.sc.gov/sites/dor/files/forms/C245.pdf
• SCDOR Appeals Process — https://dor.sc.gov/notices-compliance/appeals-process
• SCDOR Taxpayers' Bill of Rights — https://dor.sc.gov/transparency/taxpayers-bill-rights
• SCDOR Audit Process — https://dor.sc.gov/notices-compliance
• South Carolina Administrative Law Court — https://scalc.net/
• ALC Rules of Procedure (eff. April 18, 2022) — https://www.scalc.net/Rules%20documents/Official%20ALC%20Rules%202022.pdf
• MyDORWAY portal — https://mydorway.dor.sc.gov

Disclaimer: This template is provided for informational purposes only and does not constitute legal advice. A South Carolina-licensed attorney must review and customize this document before producing documents or position statements to SCDOR. Statutes, regulations, and Department procedures change frequently; verify all citations and deadlines before producing any audit response.