United States

Fourth Amendment protection not extended to state auditor actions

TAX BLOG  | 


Recently, the Minnesota Tax Court determined that the constitutional protection from unlawful search and seizure was not applicable to the actions of a state auditor. Those actions, however, provide an important reminder to taxpayers on handling state audits.

On review by the Minnesota Tax Court, the taxpayer in question did not dispute the computed assessment, but whether the assessment was due at all. Specifically, the taxpayer contended that during the initial audit meeting, the auditor used the taxpayer’s laptop to acquire accounting records without the taxpayer’s permission. The taxpayer argued that business records obtained through the auditor’s actions should be excluded from review under the Fourth Amendment of the U.S. Constitution and the corollary provision under the Minnesota Constitution – provisions addressing illegal searches and seizures. The court ultimately determined that the “exclusionary rule” (a rule that prohibits the use of evidence obtained illegally) generally applied to criminal cases and not to civil tax proceedings.

Assuming the taxpayer’s account of the events were accurate, the auditor “without permission suddenly walked over to the laptop, pulled out a portable drive, plugged it into the laptop port, downloaded complete QuickBooks files, and left the store," there is little question that those actions are well outside the bounds of normal audit procedures and behavior. Without further reading into those events and the actions (or inaction) of either the taxpayer or the auditor, taxpayers should remember the importance of establishing protocols around information requests, i.e., determining how documents will be reviewed by the auditor and how and what information will be requested through IDRs (information document requests). Taxpayers should consider working with the auditor to establish an audit timeline for various requests and responses to requests.

Being subject to a state tax audit is not a pleasant experience for most taxpayers and it can be difficult to remember that the auditor is neither your friend, nor your enemy. Addressing problems with the auditor sooner rather than later may help mitigate larger issues down the road. Consider speaking to your tax advisor as soon as you receive a notice of audit, rather than waiting until the audit has concluded. 


Mo Bell-Jacobs

Manager

Mo examines state and local tax issues and the impact of legislation on middle market companies. Contact him at mo.bell-jacobs@rsmus.com.

Areas of focus: State and Local TaxWashington National Tax