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My company was audited for sales and use taxes for the

My company was audited...

My company was audited for sales and use taxes for the period from 1/1/12 through 12/31/14. The state claimed that we failed to collect the proper amount of tax and determined in 2017 that the amount due was $105,678, plus interest. We appealed and in January, 2018 agreed to settle for $89,000, with 25% due in August 2018 and the balance in equal monthly installments over 18 months. We have not established any reserves for this liability so the question is what are the appropriate journal entries for 2017 and 2018?

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Answered in 5 hours by:
3/11/2018
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,444
Experience: Former IRS Revenue Agent
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I'm Fiona, former IRS revenue agent. I am looking at your question and will get back to you soon. Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP,IMTA

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Dear Customer,

Part I.

It is suggested that you register liability account part as short term liability and part as long term liability.

The short term liability includes the amount needs to be paid within one year of the settlement.

The long term liability is the amount not due until after one year.

Part II.

The expense account is Other Expenses: sales tax audit 2012 - 2014.

To save our energy, separate the penalty part out and the interest out under separate sub-accounts but in the same category. Penalty will not be income tax deductible.

This sales tax is deductible during the year paid. Therefore, the short term liability can go into expenses.

However, for the long term liability, it is suggested that you create a reserve account under the equity account to account for the sales tax to be paid to reduce the equity account balance.

Then, in each period when you need to pay, reverse the sales tax to be paid out of the reserve and move to the Other Expenses sales tax audit 12 to 14. Then, it will be deducted as the correct current period expenses.

Give this a try and feel to follow up.

Regards,

Fiona

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Customer reply replied 5 months ago
Thanks, ***** *****'s very helpful.

Dear Customer,

You are welcome. A five star rating would be appreciated for me to get credit for the work.

Thank you.

Regards,

Fiona

Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,444
Experience: Former IRS Revenue Agent
Verified
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