Case study · Tax Data Assurance

E-Filed Tax Data Assurance for Corporate Taxpayers

Corporate and partnership tax returns are filed as XML, and the tax authority works from that data. We reviewed those files from both sides of the filing and found the same weak point in most audits: manual entries that did not match the filed data.

The client

Consolidated corporations and partnerships filing federal, multi-state and international returns in the United States, reviewed as preparer at two Big Four firms and as auditor at a US state tax authority.

The challenge

US federal returns are filed through the IRS Modernized e-File system, which uses XML, and each state runs its own e-file programme. The tax authority sees the XML, not the company’s books. When the two disagree, the error does not surface at filing. It surfaces at audit, as an adjustment.

Our approach

Our managing director worked on both sides of the filing:

Reviewed the e-file XML directly before submission, checking it against workpapers, tax provision calculations and the general ledger.
Audited large corporate and pass-through returns after filing, starting from the XML and tracing each figure back to the taxpayer’s records.
Tested unitary filings, intercompany transactions and multi-state apportionment.
Documented every finding in audit workpapers and technical position memos.
Resolved issues with taxpayers, their accountants and legal representatives.

The results

Manual inputs and overrides that did not agree with the filed XML were found in most audits.
Every discrepancy documented and resolved.
A tested method for reconciling filed tax data to source records, which we now apply to e-invoice data under Fawtara.

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