Dow Lohnes Price’s Dispute Resolution services comprise three main areas: Pre-Audit Tax Planning, Audit Management, and Issue Resolution.

Pre-Audit Tax Planning

Pre-Audit Tax Planning is a review process initiated prior to the start of the audit which results in a strategy to maximize tax opportunities and minimize tax exposures. Pre-Audit Tax Planning provides the best platform for an efficient provision of services; it allows Dow Lohnes Price to win potentially controversial tax issues at the audit or administrative level and avoid costly litigation. In fact, the firm has won many large tax refunds at the administrative level due to successful implementation of a strategy developed in Pre-Audit Tax Planning.

Pre-Audit Tax Planning includes a review of federal RAR adjustments and their impact on the returns under audit and a determination of whether federal adjustments should be handled as part of the audit. Pre-Audit Tax Planning also includes implementation of strategies during the current audit cycle to enable the client to sustain difficult or potentially controversial positions taken in the next audit cycle.

Pre-Audit Tax Planning starts with a review of tax return filing positions and transactions occurring during the audit and post-audit periods. The review primarily focuses on the tax return position claimed for significant and controversial issues and may include:

• Examination of filing method used for each return.
• Review of entities included or excluded from each return.
• Review of business versus nonbusiness classification for transactions.
• Review of sourcing and methodology used in apportionment factors.
• Review of state modifications to income such as add-backs and throw-outs.

The review may identify a situation where the statute as applied to the client’s facts is unconstitutional, an instance where distortion exists, or a circumstance where an application for relief may be made. Dow Lohnes Price and the client may then evaluate alternative tax positions which take into account legislation, tax policy changes, judicial action, industry trends and the client’s subsequent transactions, events and results. If alternative positions are identified, the tax cost or benefit associated with each alternative may be computed by either the client or Dow Lohnes Price, leading to a selection of the most favorable position. While a change in position during an audit is difficult, it is not impossible; the firm has considerable success in raising and sustaining affirmative issues during the audit.  Following are filing positions which could potentially be changed through affirmative action:

• Change in filing method to or from unitary line of business combination, overall unitary combination, combined, consolidated, or separate entity filings.
• Addition of entity excluded from the return.
• Removal of entity included in the return.
• Claim of instant unity for a newly acquired company.
• Reclassification of income or loss from business to nonbusiness.
• Reclassification of income or loss from nonbusiness to business.
• Change in sourcing in computation of apportionment factors.
• Change in methodology in computation of apportionment factors.
• Change in intercompany fee or interest allocation.
• Change in computation of add-back or throw-out.

Once a determination is made as to which filing positions are to be sustained and which filing positions are to be changed, Dow Lohnes Price then develops a strategy to sustain or attain each position. The firm has a solid track record in building a case for a change in position, justifying the position and sustaining the refund at the audit or administrative review level. 

Dow Lohnes Price will review facts and documentation provided by the client to support the filing positions and will work with the client to begin collecting sufficient documents and facts to support the desired position. At the same time, the firm will identify the weaknesses of the position and look for documentation and facts to minimize or neutralize the weaknesses. The firm will also structure arguments to substantiate the filing position going into the audit. The ability of the firm to settle controversies at the lowest possible level is directly related to Pre-Audit Tax Planning and the advance preparation to substantiate the desired position. Pre-Audit Tax Planning enables the firm to strategically manage the audit process and effectively represent the client’s position at the beginning of the audit fieldwork. Please refer to the practice description for Audit Management services.

Audit Management

Dow Lohnes Price handles all phases of controversy from the start of the audit and fieldwork through the protest and appeals stages, including audits of income tax, sales/use tax and other state and local taxes. While this is a description of its income tax Audit Management services, similar services are provided with regard to other types of taxes and unclaimed property.

Optimal results are achieved when Dow Lohnes Price is engaged to manage the audit prior to commencement of the examination. Its philosophy of practice is to resolve tax controversies at the lowest possible level, a goal which is most likely achieved through strategic handling of the audit from its inception. This does not mean that in-house professionals have no part in managing the audit - it means that a strategy is developed in advance of the audit and executed through every phase of the audit process by in-house professionals. For this reason, existing clients generally consult with Dow Lohnes Price at the first audit notice to develop an Audit Management plan. On the other hand, many first-time clients may not engage Dow Lohnes Price until the latter stages of an audit, since they are not familiar with our services. When engaged late in the audit process, Dow Lohnes Price will intervene as needed with the audit timeline to allow time for an assessment of the opportunities and exposures and to develop a strategy for dealing with both.

In some cases, Dow Lohnes Price is not engaged until the audit has become a crisis situation through either a particular incident or a progression of events. The professionals of Dow Lohnes Price are able to assess the situation quickly and intervene strategically. For example, the firm has intervened to remove a cease and desist notice or lien and to return the client to an audit or appeal tax status. In other instances, the firm has intervened to establish a cooperative working relationship where the client’s relationship with the auditor had plateaud without resolution of significant issues or perhaps had degenerated to becoming unproductive. Dow Lohnes Price will intervene and establish a neutral audit environment and will work with the state to establish an audit plan and timeline which allows further consideration of unresolved issues. The firm will then work with the client to establish an Audit Management plan to rectify the state of affairs and manage the audit to achieve the client’s goals.

Dow Lohnes Price develops a deep understanding of the client’s business, industry, operating style and risk aversion and uses this knowledge to develop a strategy for achieving the client’s Pre-Audit Tax Planning goals through the audit process itself. It is important to note that legislative, administrative and judicial changes occur between the time that a tax accrual is recorded, a tax return is filed, and an audit commences. For this reason, it is critical to engage in a Pre-Audit Tax Planning process in preparation for an audit so that all opportunities and risks are identified and included in the Audit Management plan. Please review our practice description for Pre-Audit Tax Planning for information on implementing a tax planning process before commencement of the audit. 

Following is a listing of services which may be provided in connection with Audit Management as a complete package or in any combination selected by the client:

• Prepare responses to nexus questionnaires which may or may not include completion of the questionnaire.
• Prepare responses to audit notification notices including identification of the best place to conduct the audit given the opportunities and risks associated with the proposed audit period.
• Designate the firm’s office, or the Washington or Atlanta offices of Dow Lohnes, as the location of the audit in situations where the goal is to limit disruption to the client and/or control or eliminate auditor’s contact with the client and its operations.
• Meet with auditor at the beginning of the audit and during fieldwork to agree on the audit plan and parameters for the auditor.
• Prepare all correspondence, including responses to Information Document Requests and other inquiries in accordance with Pre-Audit Tax Planning.
• Review client-prepared data and documents and suggest revisions as needed to attain Pre-Audit Tax Planning goals and suggest additional documents which may be useful to introduce into the record.
• Meet with the auditor and supervisor as needed to prevent the scheduling of any items which may be resolved through documentation or negotiation at the audit level.
• Establish and seek agreement with the auditor on the portrayal of the facts as a preliminary step to later seeking stipulations when the matter is expected to advance to Issue Resolution.
• Review audit schedules, workpapers, computations and results for accuracy in amount, description and portrayal, and work with the auditor to achieve a fair portrayal of the audit results.
• Research all issues raised and strategically plan how to use the issues in attaining the goals established for the Dispute Resolution.
• Identify potential affirmative refund claims for all years and develop strategies for making the claims.
• Determine effect of preliminary audit results on future years and identify potential tax planning opportunities.  

The firm may advise on the above matters rather than perform them if the client prefers to remain involved in the audit management process and engage Dow Lohnes Price to provide oversight and review of the audit.

Dow Lohnes Price has success in resolving issues at the audit level when such issues are often taken to appeals or litigated by other firms. Therefore, while the depth of preparation in planning for and managing an audit may appear at first glance to be excessive, the value to the client is realized by lower fees in total and quicker resolution. When significant disputes can be resolved at the audit or administrative review level, the matter retains a lower profile which is often a factor leading to greater success than what may be attainable in more public forums. However, sometimes it is simply not possible to resolve all issues with the auditor and such issues are identified during Pre-Audit Tax Planning. In these cases, the firm provides Issue Resolution services.

Issue Resolution

Some issues may not be resolvable at the audit level and will result in adjustments to the return or assessments. In these cases, Dow Lohnes Price works to resolve the issue at the administrative level, typically by developing a constructive dialogue with the hearings officer and establishing a mutual goal to explore all options for resolution without litigation. Occasionally we encounter an officer who approaches the task with the mindset of merely serving as a conduit to the next level; the firm regards it as a challenge, develops a relationship which will lead to an engagement on the issues, and makes a thorough and compelling case which may lead to full or partial resolution of the issues with the officer.

The Position Paper: Narrative

Issue Resolution at the administrative level almost always requires the filing of a position paper, protest or brief. This document, referred to as a position paper, is thorough and includes every possible argument and analysis to support the client’s position on the issue. Since the goal is to resolve the issue at the administrative level, no arguments are “saved back” for use solely in litigation. The narrative in the position paper seeks to make complex issues appear simple while providing more-than-ample evidence that the client’s facts support the position to the exclusion of all other positions.

The narrative creates support for the client’s legal position by reference to judicial precedent in multiple jurisdictions. Since Dispute Resolution is the core of our practice, the firm dedicates resources to creating and maintaining a database of all precedential income tax cases on hot topics. The facts and arguments of each case are distilled into tables; variations of the tables are maintained to illustrate nuances of the case which are extracted and used independently from other issues decided in the case. The client benefits from reduced fees since all of our professionals are highly experienced at Issue Resolution and individually adept at using the firm’s in-house database to develop a narrative which builds a multi-jurisdictional case to support the client’s position and illustrate the nuances in the client’s case. Rather than relying on one or two cases to support the client’s position, the firm uses multiple individual cases to illustrate and support each aspect or nuance of the client’s position. Thus, the position paper does not focus on a single “silver bullet,” it typically relies on numerous well placed “shots” which inevitably leads to the conclusion that the client’s position is appropriate to the exclusion of the state’s position.

The Position Paper: Tables

The firm recognizes that hearing officers are individuals and some persons are more responsive to bullet points and bits of information as opposed to prose and written narrative. The firm employs a strategy to clearly state the case in the narrative and to restate the case in tables. Thus, the position paper is supported by numerous tables which lay out the facts and legal position of each case to illustrate the resemblance to the client’s facts and legal position in some aspect of the issue. Thus, a hearing officer who merely skims the narratives while studying the tables will still be presented with a fully developed legal analysis in the tables.

The Position Paper: Exhibits

The firm strategically employs the use of exhibits to illustrate the client’s facts which enables the position to be restated yet again in a “picture” and also serves as a mechanism to present the case in a way which appeals to hearing officers leaning towards being visual learners. The exhibits take a variety of formats and may include photos, business records with highlighted sections, publications, flowcharts, charts and graphics. The firm may use technical dictionaries or industry publications in illustrating a point pertinent to the client’s facts. Thus, the exhibits restate the client’s facts and establish a lasting impression.

Beyond the Position Paper

The firm does not rely on the position paper to resolve the issue. Issue Resolution also involves informal meetings, telephone conferences and the exchange of information. These exchanges allow for the case to be presented in a way which appeals to auditory learners while also establishing a process by which both sides engage in weighing the strength of the taxpayer’s position in an effort to reach resolution. The firm coordinates the communication in a sequence designed to bring the client’s facts into perspective and to chip away at the state’s position while demonstrating the strength of the client’s position.

Each situation is unique and Dow Lohnes Price works with the client to determine the strength of the position during Pre-Audit Tax Planning which is then re-evaluated throughout the ensuing audit and administrative appeal. In some cases, a negotiated settlement may be envisioned from the outset and Issue Resolution process is handled in a way to achieve the best possible settlement or compromise.

However, in many situations, the firm develops a case which it believes to be winnable at 100% and has a solid track record for winning 100% of the issues entrusted to its care, even when the dollar amount at stake is significant. The firm does not flinch at pursuing a complete win and has often achieved it on the eve of litigation. This often occurs when the attorney general’s office is brought into the negotiations and can evaluate the taxpayer’s position and the risks and benefits of litigation, although sometimes the capitulation does not occur until the case has been filed in court.

In these cases, the firm will make a recommendation to the client with regard to selection of counsel and typically continues to manage the case as it proceeds towards litigation. Counsel may be selected with an eye towards local presence and/or specific case experience, depending on the nature of the issue. Services provided by the firm include reviewing legal bills, developing strategy, and preparing draft briefs for counsel. Typically, there is very little additional research needed due to the quality of the work and the depth of the position paper.

After the issue is resolved, the firm provides Tax Planning services to develop strategies for the issue with regard to future periods. The firm also assesses how the win can be leveraged by the client in other jurisdictions.