Florida Regulations 12-26.009: Refund/Offset Within an Audit
Terms Used In Florida Regulations 12-26.009
- Statute: A law passed by a legislature.
- Statute of limitations: A law that sets the time within which parties must take action to enforce their rights.
(a) “”Audit period”” shall mean the period of time established by a notice of intent to conduct an audit issued by the Department during which the Department’s power to make an assessment under Florida Statutes § 95.091(3), or grant a refund under Florida Statutes § 215.26(2), has not terminated.
(b) “”Filing period”” shall mean the taxable period as reported on the returns under audit.
(c) “”Same audit period”” shall mean:
1. The period of time under audit for two or more taxes which are listed on the same notice of intent to conduct an audit.
2. The period of time under audit for two or more taxes which are listed on different notices of intent to conduct an audit when at least eighty percent (80%) of the audit period established by the second notice of intent to conduct an audit falls within the audit period established by the first notice of intent to conduct an audit. For example:
a. A notice of intent to conduct an audit dated 2/8/95 is issued for sales and use tax. This notice establishes an audit period of 1/90-12/94. Subsequently, a second notice of intent to conduct an audit dated 3/10/95 is issued for corporate income tax. This notice establishes the tax years ending 12/31/89-12/31/93 as the period under audit. Since eighty percent (80%) of the audit period established by the second notice of intent to conduct an audit falls within the audit period established by the first notice of intent to conduct an audit, the audit periods covered by these two notices would be considered the same audit period.
b. A notice of intent to conduct an audit dated 11/3/93 is issued for corporate income tax. This notice establishes the tax years ending 12/31/88-12/31/92 as the period under audit. Subsequently, a notice of intent to conduct an audit dated 2/8/95 is issued for sales and use tax. This notice establishes the audit period of 1/90-12/94. Since only sixty percent (60%) of the audit period established by the second notice of intent to conduct an audit falls within the audit period established by the first notice of intent to conduct an audit, the audit periods covered by these two notices would NOT be considered the same audit period.
(d) “”Tax Category”” shall mean an individual tax administered by the Department of Revenue under the authority provided in Florida Statutes § 72.011 For purposes of this rule, all taxes reported on the Florida Department of Revenue Insurance Premium Taxes and Fees Tax Return, Form DR-908, incorporated by reference in subsection 12B-8.003(1), F.A.C., are considered to be one tax category.
(3) Procedures When Auditing One Tax Category.
(a) When an overpayment(s) and an underpayment(s) are found in the filing periods under audit, the earliest period with an overpayment shall be offset against the earliest period with an underpayment of tax, interest, or penalty. Any remaining overpayment(s) shall be carried forward and applied to the next period(s) under audit where underpayments are determined to exist.
(b) Overpayments shall be applied to underpayments in the following order:
1. To any accrued tax;
2. To any accrued interest; and,
3. To any accrued penalty.
(c) If the audit results in a net overpayment, after all underpayments of tax, interest, and penalty are offset, any overpayment which is outside the time limitations provided for refund in section 215.26 or 220.727, F.S., if applicable, shall be barred from further refund or credit.
(d) Examples:
1. A sales and use tax audit covering the period July 1, 1988 through June 30, 1993 was completed and the net underpayment was paid on August 1, 1993. The audit revealed that all periods were properly filed and paid except the following:
Applied
Tax
Period
Cumulative
Period
Under Paid
Interest
Penalty
Total
Amount
10/88
$100.00
$1.00
$5.00
$106.00
$106.00
11/88
<200.00>
0.00
0.00
<200.00>
< 94.00>
12/88
150.00
30.42
14.00
194.42
100.42
Total Due
$100.42
The earliest filing period with an overpayment (11/88) is offset against the earliest filing period with an underpayment (10/88). The 11/88 overpayment of $200 is applied to the 10/88 underpayment of tax, interest, and penalty totalling $106. Interest and penalty on the 10/88 underpayment is calculated for one month. The remaining $94 overpayment, after the offset, is then applied to the $150 underpayment of tax for 12/88, leaving an outstanding tax amount of $56. Interest is calculated on the $56 underpayment through the date of payment and penalty is capped at 25% of the $56 underpayment. The net amount due on the date of payment, August 1, 1993, is $100.42.
2. A corporate income tax audit covering the period January 1, 1988 through December 31, 1992 was completed and a notice issued on March 1, 1994. The audit revealed the following:
Applied
Tax
Period
Cumulative
Period
Under Paid
Interest
Penalty
Total
Amount
12/88
$<800.00>
$0.00
$0.00
$<800.00>
$<800.00>
12/89
200.00
0.00
0.00
200.00
<600.00>
12/90
200.00
0.00
0.00
200.00
<400.00>
12/91
100.00
0.00
0.00
100.00
<300.00>
12/92
250.00
0.00
0.00
250.00
<50.00>
Net Total
$<50.00>
In this example, the earliest overpayment (12/88) is applied to the earliest underpayment (12/89) and the remaining overpayment is carried forward and applied to the next underpayment(s) until each underpayment is offset. There is no interest or penalty computed since each period results in a net overpayment. The net result of the audit is an overpayment of $50.00. Since the overpayment was made in a year which is outside the statute of limitations for refund, the $50.00 net overpayment is barred from any additional refund or credit.
(4) Procedures When Auditing Two or More Tax Categories – Same Audit Period.
(a) The net amount overpaid or underpaid during the audit period will be determined for each tax category under audit using the procedures detailed in subsection 12-26.009(3), F.A.C.
(b) The full amount of any net overpayment discovered during the audit of one tax category, whether within statute for refund purposes or not, shall be offset against any net underpayments found during the same audit in any other tax category included in the audit.
(c) The tax category with a net overpayment from the earliest filing period shall be offset against the tax category with a net underpayment from the earliest filing period. Any remaining overpayment(s) shall be applied to any tax category with later filing periods where underpayments are determined to be due during the audit period.
(d) Overpayments shall be applied to underpayments in the following order:
1. To any accrued tax;
2. To any accrued interest; and,
3. To any accrued penalty.
(e) Example: A taxpayer’s sales and use tax, insurance premium tax, and corporate income tax are included on the same audit for the tax periods January 1987 through December 1991. The notice of intent to make audit changes was issued on March 1, 1993. After all overpayments and underpayments are offset within each tax category, the following information is revealed:
Tax
Tax
Net
Category
Period
Under Paid
Interest
Penalty
Amount
Sales/Use
10/88
$1000.00
$378.08
$250.00
$1628.08
Insurance
12/88
<2500.00>
0.00
0.00
<2500.00>
Corporate
12/90
200.00
32.97
50.00
282.97
Net Result
$<588.95>
The net overpayment in insurance premium tax (from filing period 12/88) is offset against the net underpayment in sales and use tax (from filing period 10/88) and the remaining overpayment is then offset against the net underpayment in corporate income tax (from filing period 12/90). Since the final result of the audit is an overpayment and the entire amount of the overpayment is outside the statute of limitations for refund, the remaining overpayment is barred from any additional refund or credit.
(5) After all overpayments and underpayments discovered in the audit have been offset, a determination of the net result of the audit is made.
(6)(a) When the audit results in a net overpayment, the date of the overpayment is reviewed to determine whether it is within the statute of limitations for refund as provided in section 215.26 or 220.727, F.S., if applicable.
(b) When the net overpayment is refundable, the auditor shall inform the taxpayer of the procedures, as provided in this chapter, for filing a claim for refund.
(c) Any part of the net overpayment which is outside the statute of limitations for refund is barred from any further refund. For audits where the notice of intent to conduct an audit is issued on or after the effective date of this rule, any part of the net overpayment which is outside the statute of limitations for refund is also barred from any further credit.
(7) When the audit results in a net underpayment, after the entire overpayment(s) has been used to offset the underpayment(s), any tax, interest, or penalty remaining due shall be assessed and billed.
Rulemaking Authority Florida Statutes § 213.06(1). Law Implemented 72.011, 95.091, 213.25, 213.34, 215.26 FS. History-New 4-18-95, Amended 4-16-18.