42-1108. Audit; deficiency assessments; nonaudit adjustments; electronic filing

A. If a taxpayer fails to file a return required by this title or title 43, or if the department is not satisfied with the return or payment of the amount of tax required to be paid under either title, the department may examine any return, including any books, papers, records or memoranda relating to the return, to determine the correct amount of tax.  This examination must occur within the time periods prescribed by section 42-1104 and may be accomplished through a detailed review of transactions or records or by a statistically valid sampling method.

B. The department shall give the taxpayer notice of its determination of a deficiency by mail or as prescribed by subsection C of this section, and the deficiency, plus penalties and interest, is final forty-five days after the date of receipt of the notice to the taxpayer unless an appeal is taken to the department. For individual income tax, the period is ninety days after the date of mailing.  In the case of a joint income tax return, the notice may be a single joint notice mailed to the last known address, but if either spouse notifies the department that separate residences have been established, the department shall mail duplicate originals of the joint notice to each spouse.

C. The department may issue notice of its determination of a deficiency under subsection B of this section by using an electronic portal in lieu of mail, if all of the requirements of this subsection are met, after December 31, 2018 or when the department establishes the electronic portal, whichever is later.  The use of the electronic portal in lieu of mail is subject to the following requirements and conditions:

1. The taxpayer agrees in writing to allow the department to use the electronic portal to issue notice of the department's determination of deficiency for specified tax periods. The agreement shall include an email address that the department may use to notify the taxpayer as required by paragraph 2 of this subsection.  A taxpayer that provides an email address is certifying that the taxpayer regularly monitors that email address. If the taxpayer's email address changes, the taxpayer shall notify the department of a new email address.

2. The department shall notify the taxpayer, using the taxpayer's e-mail address, on the same day the notice of its determination of a deficiency is posted to the electronic portal.

3. The date of receipt for a notice provided by electronic portal is the later of the date the notice is posted to the electronic portal or the date the notification is received by the taxpayer. A notification sent by e-mail is considered to be received by the taxpayer on the day it is sent by the department.

D. If a deficiency is determined and the assessment becomes final, the department shall mail notice and demand to the taxpayer for the payment of the deficiency. Notwithstanding section 42-1125, subsection E, the deficiency assessed is due and payable at the expiration of ten days after the date of the notice and demand.

E. A certificate by the department of the mailing or e-mailing of the notices specified in this section is prima facie evidence of the assessment of the deficiency and the giving of the notices.

F. Any amount of tax in excess of that disclosed by the return due to a nonaudit adjustment, as listed in subsection G or H of this section, notice of which has been mailed to the taxpayer, is not a deficiency assessment within the meaning of this section. The taxpayer may not protest or appeal as in the case of a deficiency assessment, based on such a notice, and the assessment or collection of the amount of tax erroneously omitted in the return is not prohibited by this article.

G. An adjustment due to any of the following is considered a nonaudit adjustment:

1. An addition, subtraction, multiplication, division or other mathematical error shown on any return.

2. The failure of the taxpayer to properly compute the tax liability based on the taxable income reported on the return.

3. An incorrect usage or selection of information for a filed return from tax tables, schedules or similar documents provided by the department if the incorrect usage is apparent from the existence of other information on the return.

4. An entry on a return that is inconsistent with an entry on a schedule, form, statement, list or other document filed with the return.

5. An omission of information required on the return to substantiate an entry.

6. An entry on a return of a deduction or credit in an amount that exceeds a statutory limit if the limit is a monetary figure, a percentage, a ratio or a fraction and the items entered into the application of this limit appear on the return, including claiming a deduction or credit that is not authorized by statute for the taxable period.

7. Missing or incorrect taxpayer identification numbers for the purposes of claiming exemptions or credits.

8. An entry of a credit or deduction that requires a preapproval if the credit or deduction has not been preapproved or if the entry is for more than the preapproved amount.

9. An entry of a credit or deduction amount carried forward from a prior year that is outside of the statutory period allowed for the carryforward or is for an amount that is inconsistent with the taxpayer's prior year returns.

H. If a taxpayer that files its return electronically is allowed to input the information from a document into the electronic filing program instead of providing the actual document with the return, the department may request a copy of the document from the taxpayer at any time.  If the taxpayer provides the document, the department may adjust the return to reflect the amounts on the document.  If the taxpayer does not provide the requested document within the period provided by the department, the department may deny any deduction, credit or withholding that the document is intended to substantiate. An adjustment made pursuant to this subsection is considered a nonaudit adjustment under subsection G, paragraph 4 of this section, even though the actual document is not included with the electronically filed return if the department requests the document within sixty days after the due date of the return or the date on which the return was filed, whichever is later.