Pub. 3 2021 Issue 3

M A Y / J U N E 2 0 2 1 10 nebraska cpas S TAT E TA X B R I E F I N G NEBRASKA STATE TAX DEFENSE: THE ANATOMY OF RESOLVING STATE TAX MATTERS BY NICK NIEMANN AND MATT OTTEMANN, MCGRATH NORTH In the first of three articles for this series, we reviewed several Nebraska tax planning opportunities that state and local tax professionals are addressing during the life of a business or individual “Before an Audit.” In this article, we’ll examine certain best practices that can be deployed “During an Audit” to work towards resolution and settlement at that level. Issue: Failure to Create a Strong Tax Defense Team Problem: Companies try to tackle state and local tax audits without the right mix of state and local tax professionals. What to Do: Like so many matters in business, the right team needs to be deployed to best accomplish what is needed. In state tax audits, this is best when determined early in the audit by deciding on your tax defense team. This team typically consists of a company’s in-house tax professional, an outside CPA, and a state and local tax attorney. We recommend this team be assembled to review and vet potential tax issues and problem areas before the auditor is let into the door. This will help ensure the fact issues and legal issues and positions are known and properly expressed from the get-go. Issue: When the Tax Defense Team Should Remain Behind the Scenes Problem: Potential audit issues can go off the track early on (often irretrievably) if facts are not correctly explained or the correct tax issue isn’t spotted or dealt with properly. What to Do: There are often advantages to having the CPA or state and local tax attorney working behind the scenes initially, particularly in the audit phase. In some situations, the presence of numerous tax professionals could lead a taxing authority to question why those professionals are needed (particularly if they have not identified any issues). So, the tax defense team should