The District has been aggressively auditing individual taxpayers with an Information Request for taxpayers who filed a federal tax return with a District address and no corresponding D40 Resident Tax Return. As there is no Statute of Limitations for unfiled tax returns, these audits have been known to go back for 10 years or more.
If you have received a D.C. non-filer inquiry, often the balance due can be reduced by providing a copy of your filed state tax return and proof of residency (lease agreement or utility bill). You may need to file a District resident or part-year resident return to close your case. In other cases, you may need to seek a refund of tax withheld in error.
Taxes on wages are owed to the District based on residency and not work location. So, for Residents who live in DC and work in VA or MD, make sure you adjust your withholding to your state of residency, particularly if you have moved. Refunds can be claimed going back only for 3 years for incorrect withholding, but what is a taxpayer to do for older years?
In addition to individual tax returns, OTR routinely audits business tax returns to ensure that taxpayers comply with local statutes, particularly pertaining to sales and franchise taxes. Audits are done by mail or through personal interviews with auditors, and you have the right to know which records you will need to support your position, prior to any audit meeting.
Upon conclusion of the Audit, you will receive written notice detailing any adjustments made to your tax return and any balance due in the form of a Notice of Proposed Audit Changes. The notice will specify you have 30 days to request an Informal Conference if disagree with OTR’s determination. If a Resolution is not reached at the settlement conference, a Notice of Proposed Assessment will be issued. The taxpayer then has the option of appealing the decision to the Office of Administrative Hearings (OAH) within 30 days, by filing a petition here or the D.C. Superior Court (where advance payment of the tax assessment is required).
You may appeal any penalty waiver determination via a Request for Consideration within 30 days of the denial of your penalty waiver request. Taxpayer mush show reasonable cause and acting in good faith. Taxpayer should outline in a detailed letter the exercise of ordinary business care and prudence in determining tax obligations, but for an uncontrollable reason was unable to comply within the prescribed time. An informal conference should be requested and all proof to support your case should be made readily available.
OTR’s Criminal Investigation Division (CID) investigates alleged tax fraud and maintains a referral program to encourage individuals to report information regarding potential fraud. Examples of tax fraud and abuse include failing to file your tax return, filing false tax returns, unreported income and return preparer schemes. In accordance with confidentiality laws, individuals who report tax fraud will not receive a status updates, however, the District is authorized by statute to pay rewards to informants.