Legislature makes significant changes to use of Contingency Fee Audits

During their 2012 Short Session, the North Carolina General Assembly passed legislation implementing significant changes to how local governments in the state can use contingency fee-based services to audit tax compliance.

The NC League of Municipalities is preparing a Memo on these changes, which will take effect starting July 1, 2013. A summary of the impact was provided in the Summary Bulletin of the session they published this week:

In response to a significant push from the NC Retail Merchants and NC Chamber, HB 462 in its original form was designed to eliminate the ability of local governments to use contingent fee based assessment contracts to complete tax compliance audits.  Lacking adequate staffing levels, cities and counties use these audits to identify property which is not being listed, or not being properly valued, by the taxpayer.  Most of these audits apply to business personal property and provide great value to local governments and taxpayers because these contracts only require payment to the audit firms once discovered taxes are paid.  Working as part of a coalition, the League was successful in preventing a complete elimination of the use of the audit tool. Instead, the League and the coalition it was a part of negotiated a delay in the effective date of a moratorium on the use of contingency fee based audit contracts to July 1, 2013, a study of the issues of tax audits, and a sunset on the prohibition of these contracts on July 1, 2015.  A study of the issues will likely be completed by the Legislative Research Commission, where all parties have agreed to work toward improved audit solutions and practices.

This was also a significant part of the presentation made by NCLM Director of Research Karl Knapp during last week’s NCLGBA Summer Conference in Wilmington. He took a few minutes to record this interview, providing an explanation of the impact of the laws and advising local governments to avoid taking actions that could endanger continued use of contingency fee auditing services.

For more information or guidance, contact Paul Meyer at the League, (919)715-3930.

DISCLOSURE – NCLGBA has received financial support for prior conferences, including the 2012 Summer Conference, from Robert S. Segal, CPA PA, a firm that provides contingency fee-based auditing services. Mr. Segal, nor anyone else involved in his firm or in the delivery of contingency fee-based audited services, was involved in the preparation of this post.

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