Utah State Tax Audit Response — IDR Responses and Position Statement

UTAH STATE TAX AUDIT RESPONSE — IDR RESPONSES AND POSITION STATEMENT

TABLE OF CONTENTS

1. Cover Letter
2. Audit Identification
3. General Statement of Cooperation and Reservation
4. Records Produced and Records Retention Statement
5. Index of Information Document Request Responses
6. Specific IDR Response — Template Block
7. Position Statement — Pre-Assessment
8. Penalty and Interest Defense
9. Confidentiality and Privilege Designations
10. Reservation of Rights
11. Power of Attorney and Signature
12. Certificate of Service
13. Utah Practice Notes
14. Sources and References

1. COVER LETTER

[LAW FIRM / TAXPAYER LETTERHEAD]

[__/__/____]

Auditing Division — Utah State Tax Commission
210 North 1950 West
Salt Lake City, UT 84134

Attn: [AUDITOR NAME, TITLE]
Audit / Case No.: [________________________________]

Re: Response to Information Document Request(s) and Position Statement
Taxpayer: [TAXPAYER NAME]
Account / Tax ID: [________________________________]
Tax Type(s): ☐ Individual Income (Title 59, Ch. 10) ☐ Corporate Franchise & Income (Title 59, Ch. 7) ☐ Sales & Use (Title 59, Ch. 12) ☐ Withholding ☐ Other: [____]
Tax Period(s): [__/__/____] through [__/__/____]

Dear [AUDITOR NAME]:

This letter and accompanying production constitute Taxpayer's response to the Information Document Request(s) ("IDRs") identified in Section 5 below, and Taxpayer's Position Statement on the issues raised in [the Auditor's letter dated [__/__/____] / the proposed audit adjustments dated [__/__/____]].

Pursuant to Utah Code § 59-1-401 et seq. (Taxpayer Bill of Rights) and Utah Pub. 2, Taxpayer asserts the rights to (i) representation by counsel, (ii) confidential treatment of return information under § 59-1-403, (iii) record the audit interview, (iv) request reasonable extensions, (v) obtain a written explanation of any proposed adjustment, and (vi) administrative and judicial review of any deficiency.

2. AUDIT IDENTIFICATION

3. GENERAL STATEMENT OF COOPERATION AND RESERVATION

3.1. Taxpayer has cooperated and continues to cooperate with the Auditing Division and produces the documents identified herein subject to the reservations that follow.

3.2. Taxpayer's production is made without waiver of (i) the attorney-client privilege; (ii) the work-product doctrine; (iii) the federally recognized tax practitioner privilege under I.R.C. § 7525 (to the extent applicable in state proceedings); (iv) any constitutional privilege; (v) any objection to the relevance, materiality, or scope of any IDR; (vi) any objection to the audit period; or (vii) any defense based on the statute of limitations.

3.3. Where Taxpayer has produced documents in response to an IDR but disputes that the underlying transaction is subject to Utah tax or that the proposed adjustment is correct, the production is made for completeness only and is not an admission of taxability.

3.4. Taxpayer expressly reserves the right to amend, supplement, or correct any response upon further investigation.

4. RECORDS PRODUCED AND RECORDS RETENTION STATEMENT

4.1. Retention. Pursuant to Utah Code §§ 59-12-103 and 59-12-111 and Utah Admin. Code R865-19S-22, Taxpayer maintains books and records sufficient to determine the correct tax for the periods at issue, kept in the regular course of business for non-tax purposes and retained for not less than three (3) years from the date of filing.

4.2. Format. Records are produced in [paper / native electronic / PDF / CSV / .xlsx] format, organized by IDR number and Bates-numbered [PREFIX-000001 to PREFIX-______].

4.3. Records No Longer Available. The following records are unavailable and the reason for non-production is stated:

4.4. Reconstruction. Where original records are unavailable, Taxpayer has reconstructed amounts using [bank statements / federal returns / third-party invoices / contemporaneous logs] as permitted by Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930), and Utah commission practice.

5. INDEX OF INFORMATION DOCUMENT REQUEST RESPONSES

6. SPECIFIC IDR RESPONSE — TEMPLATE BLOCK

IDR No. [____]: [SUBJECT]

Request (verbatim or paraphrased): [QUOTE THE IDR]

Response:

(a) Taxpayer produces the documents identified in Exhibit [____], Bates [BATES RANGE].

(b) Objections / Limitations (check all that apply):

☐ Overbroad as to time — Taxpayer produces records for the audit period only ([__/__/____] to [__/__/____]).

☐ Privileged — A privilege log is provided as Exhibit [____] identifying communications withheld on attorney-client and work-product grounds.

☐ Outside scope of audit / not relevant to tax type at issue.

☐ Not maintained in the ordinary course of business.

☐ Already produced in prior response — see IDR No. [____].

☐ Outside retention period — see Section 4.3 above.

(c) Narrative explanation: [Provide brief explanation of the documents and how they bear on the issue, including any reconciliation or methodology summary.]

(d) Custodian / source: [NAME, TITLE, SYSTEM].

7. POSITION STATEMENT — PRE-ASSESSMENT

7.1. Issues Identified by the Auditing Division. Based on the [date] audit narrative and proposed adjustments, the issues are:

(a) [Issue 1 — e.g., Disallowance of resale exemption on $[AMOUNT] of sales for failure to obtain Form TC-721 exemption certificates];

(b) [Issue 2 — e.g., Use tax assessment on out-of-state purchases of $[AMOUNT]];

(c) [Issue 3 — e.g., Penalty and interest under § 59-1-401 and § 59-1-402].

7.2. Taxpayer's Position on Each Issue.

Issue 1. Taxpayer obtained valid resale exemption certificates from each customer at issue, copies of which are attached as Exhibit [____]. Under Utah Admin. Code R865-19S-23 and the good-faith standard, the seller is relieved of liability for the tax once a properly completed certificate is on file.

Issue 2. The purchases identified as use-tax-due were either (i) for resale, (ii) shipped to a non-Utah location, or (iii) qualified for an exemption under § 59-12-104 (e.g., manufacturing equipment exemption under § 59-12-104(14)). See reconciliation at Exhibit [____].

Issue 3. Penalty and interest are not warranted because [Taxpayer relied on prior commission advice / position has substantial authority / first-time finding / reasonable cause as detailed in Section 8].

7.3. Authority. [Cite the specific Utah statutes, administrative rules, and Tax Commission decisions supporting each position. Tax Commission written decisions are searchable at https://tax.utah.gov/commission/decision.]

7.4. Requested Adjustments. Taxpayer requests that the Auditing Division revise its proposed adjustments as follows:

7.5. Request for Closing Conference. Taxpayer requests a closing conference with the auditor and audit manager pursuant to Utah Pub. 2 to discuss the positions above before issuance of the Statutory Notice of Deficiency.

8. PENALTY AND INTEREST DEFENSE

8.1. Pursuant to Utah Code § 59-1-401(14) and Utah Admin. Code R861-1A-42, Taxpayer requests that any penalties be waived or reduced because reasonable cause exists.

8.2. Grounds (check all that apply):

☐ Reasonable reliance on written advice from the Tax Commission (§ 59-1-401(14)(b));

☐ Position had substantial authority and was disclosed on the return;

☐ First-time error after long compliance history;

☐ Records destroyed by casualty (see § 4.3 above);

☐ Death or serious illness of taxpayer or immediate family member;

☐ Timely mailing/electronic filing not delivered through no fault of Taxpayer;

☐ Erroneous notice or computational error by the Tax Commission;

☐ Other: [________________________________].

8.3. Pre-conditions met. Taxpayer has paid (or is current on a payment plan for) any uncontested tax for the period; the period is based on a return Taxpayer filed (not an estimate); Taxpayer has not previously received a waiver review for this period.

8.4. Interest review. Taxpayer requests review of interest computations under § 59-1-402, including any over-accrual due to Tax Commission processing delay.

9. CONFIDENTIALITY AND PRIVILEGE DESIGNATIONS

9.1. The entire production is CONFIDENTIAL TAX RETURN INFORMATION within the meaning of Utah Code § 59-1-403. Disclosure is restricted to commission personnel with a need to know.

9.2. Documents listed on the privilege log at Exhibit [____] are withheld on grounds of attorney-client privilege, work-product doctrine, and/or I.R.C. § 7525 federally authorized tax practitioner privilege.

9.3. Inadvertent production of any privileged document is not a waiver, and Taxpayer reserves the right to claw back such documents under standard clawback procedures.

10. RESERVATION OF RIGHTS

10.1. Taxpayer reserves all rights, defenses, and challenges, including but not limited to: statute of limitations; constitutional defenses; claims for refund of any overpayment in any open period; right to petition for redetermination under § 59-1-501; right to seek mediation under § 59-1-502.5; and right to seek judicial review under §§ 59-1-601 and 59-1-610.

10.2. Nothing in this response shall be construed as a waiver of any objection to the conduct or scope of the audit.

11. POWER OF ATTORNEY AND SIGNATURE

A completed Form TC-737 (Power of Attorney and Declaration of Representative) is attached as Exhibit POA.

Date: [__/__/____]

Respectfully submitted,

[LAW FIRM / CPA FIRM NAME]

By: [________________________________]

[REPRESENTATIVE NAME], Utah State Bar No. [####] / CPA No. [####]

Counsel / Authorized Representative for Taxpayer

[STREET ADDRESS]

[CITY, STATE ZIP]

Telephone: [NUMBER]

Email: [EMAIL]

12. CERTIFICATE OF SERVICE

I certify that on [__/__/____] I served this Audit Response and Position Statement, with all exhibits, on the following by [hand delivery / certified mail, return receipt requested / secure email per agreement]:

[AUDITOR NAME]
Auditing Division — Utah State Tax Commission
210 North 1950 West
Salt Lake City, UT 84134

[________________________________]

[REPRESENTATIVE NAME]

13. UTAH PRACTICE NOTES

• Pre-assessment leverage. Most issues are resolvable at the auditor or audit-manager level. The roughly 25-day window after the auditor's findings letter is the best opportunity for informal resolution before a Statutory Notice of Deficiency triggers the formal § 59-1-501 timeline.
• Records retention. Utah generally follows a three-year retention rule mirroring the assessment statute of limitations (§ 59-1-1404). Sellers must maintain sales journals, exemption certificates, purchase invoices, and reconciliations under § 59-12-111 and R865-19S-22. Retain longer (six years) where federal RAR conformity, fraud, or substantial omission is at issue.
• Exemption certificates. A properly completed Form TC-721 (or TC-721A for agriculture) accepted in good faith under R865-19S-23 relieves the seller of tax liability — this is a common audit win when documentation is intact.
• Estimates and "best information available." When records are missing, the auditor may use sampling or third-party data. Taxpayer should propose an alternative methodology, push for a joint sampling agreement, and reserve the right to challenge methodology at appeal.
• Federal RAR. Utah Code § 59-10-536 requires a taxpayer to report federal adjustments within 90 days; failure to do so extends Utah's assessment statute. Coordinate state and federal protests carefully.
• Statute extensions. Do not sign Form TC-720 (consent to extend) without weighing the trade-off — extensions allow the Commission to assess longer but also preserve refund-claim rights.
• Confidentiality. Mark every page "Confidential — Utah Code § 59-1-403." Avoid producing return information through unsecured email; use the commission's Taxpayer Access Point (TAP) or encrypted delivery.
• Audit interview. The taxpayer may record the interview (Pub. 2). Counsel should advise the taxpayer that all statements may be used in any subsequent appeal or criminal referral.
• Power of Attorney. Form TC-737 must be on file before any representative may discuss the case with the auditor. For income / corporate franchise / corporate income matters, only an attorney with a POA may represent the taxpayer at a formal hearing (R861-1A-26).
• Penalty stacking. Utah § 59-1-401 imposes layered penalties (late file, late pay, negligence, fraud). Address each separately in the waiver request.

14. SOURCES AND REFERENCES

• Utah Code Title 59 — https://le.utah.gov/xcode/Title59/Title59.html
• Utah Code § 59-1-401 (Penalties / Waiver) — https://le.utah.gov/xcode/Title59/Chapter1/59-1-S401.html
• Utah Code § 59-1-403 (Confidentiality) — https://le.utah.gov/xcode/Title59/Chapter1/59-1-S403.html
• Utah Code § 59-1-1404 (SOL on assessment) — https://le.utah.gov/xcode/Title59/Chapter1/59-1-S1404.html
• Utah Code § 59-12-103 (Sales/use tax base) — https://le.utah.gov/xcode/Title59/Chapter12/59-12-S103.html
• Utah Code § 59-12-111 (Records to be kept) — https://le.utah.gov/xcode/Title59/Chapter12/59-12-S111.html
• Utah Admin. Code R861-1A-42 (Reasonable cause waiver) — https://www.law.cornell.edu/regulations/utah/Utah-Admin-Code-R861-1A-42
• Utah Admin. Code R865-19S-22 (Sales/use tax records)
• Utah Pub. 2 — Taxpayer Bill of Rights — https://tax.utah.gov/forms/pubs/pub-02.pdf
• Utah Tax Commission — Audits — https://tax.utah.gov/general/audits
• Form TC-737 (POA) — https://tax.utah.gov/forms/current/tc-737.pdf
• Form TC-721 (Exemption Certificate) — https://tax.utah.gov/forms/current/tc-721.pdf
• Tax Commission Decisions Database — https://tax.utah.gov/commission/decision

Disclaimer: This template is provided for informational purposes only and does not constitute legal advice. An attorney licensed in Utah must review and customize this document before use. Statutes, rules, and commission practice change frequently; verify all citations before submission.