sales tax audit review

Guess what? No such company exists! AlaTax appears to be just a name used by Revenue Discovery Systems, which is a name used by a company whose name is Portfolio Recovery Associates!

If you search the internet long enough, you will eventually find a website for Revenue Discovery Systems. On that website they list the "RDS Family" as being Portfolio Recovery Associates, IGS Nevada, MuniServices, Broussard Partners & Associates and The Palmer Group. AlaTax was not listed as a separate company or member of this "family".

The thought that our local taxes in Alabama are being systematically turned into corporate profits for a Virginia based company is an idea that is just "foreign" to me. We need a state law that will prevent any local government from assigning their authority/right to assess, audit and collect taxes to any third party.

Why would a company need to use not one, but two aliases? An alias of an alias ...

IGS Nevada (they don't say what, exactly IGS stands for) appears to be a company that specializes in repossessing automobiles!

MuniServices appears to be a Limited Liability Company. They claim on their website that they provide "revenue enhancement services" to municipalities. They further boast they are able to "help local governments fulfill the expanding demands of their constituents, even in the place of flat or low-growth revenue performance".

Broussard Partners & Associates state on their website that they "provide auditing services to the local governments of Louisiana on an hourly contract basis to promote compliance with their sales/use tax laws. We currently have contracts with thirty-three parish governments in Louisiana".

The link to The Palmer Group takes you to a website entitled LaMATS which appears to be an acronym for Louisiana Municipal Advisory and Technical Services. They list their contact info as Birmingham, Alabama with a Birmingham address and telephone number.

In my search for information on AlaTax I found this statement by Kennon Walthall, who says he is the President & CEO of AlaTax.
"Within the State of Alabama we go by the company name AlaTax, and outside of Alabama we work under the name Revenue Discovery Systems (RDS)."
Excerpt from a Press Release I Found:

August 3, 2005: BETHESDA, MD - Kaulkin Ginsberg Company announces the acquisition of Alatax, Inc., a privately held company that specializes in government receivables management, by Portfolio Recovery Associates, Inc. (Nasdaq: PRAA), a company that purchases, collects and manages portfolios of defaulted consumer receivables. Kaulkin Ginsberg Company served as advisor to Alatax on this transaction.

The acquisition, which was completed on July 29, 2005, after the market closed, has a total price of $17.5 million, consisting of $16.1 million in cash and $1.4 million in Portfolio Recovery Associates common stock. Alatax's two top executives, President Kennon Walthall and Executive Vice President Stephen Morris, have both signed long-term employment agreements and will continue to manage the company.

AlaTax Requested Electronic Records (Excerpt From AlaTax Letter)
Dear Taxpayer:

This office is now utilizing computer-assisted audit techniques. The use of electronic records provides an efficient way to conduct an audit of a taxpayer's records.

The primary advantage of using electronically generated records is that it considerably reduces the amount of time that it would take to conduct an audit. For example, an audit that would normally take several days or weeks at a taxpayer's location may now be reduced to a few days. Some audits may even be handled as "desk audits", in which case, the entire procedure can be completed without an on-site visit.

Local development added 09/23/09: From The Arab Tribune York Slams RDS Tax Collection Audit

Statewide Development 11/05/2009: Class Action Suit Filed - matter of public record

Development added 12/10/09: From The Arab Tribune Council quizzes RDS on audits, tax collections

Update: October 21, 2011 - Class Action Suit Status Against PRA Government Services, LLC d/b/a Revenue Discovery Systems (RDS), formerly d/b/a AlaTax

Update: January 22, 2015 - Notice of Proposed Class Action Settlement: This postcard arrived in the mail today (click image below to enlarge).

Here is a link to the proposed Class Action Settlement Agreement

It Appears that the Auditors are not Employees of Portfolio Recovery Associates, they are Independent Contractors!

Although the business card provided by the last AlaTax auditor gave the impression and appearance that he was an employee of RDS/AlaTax, he was in fact self-employed! If you are under-going an AlaTax audit you have the right to know with whom you are dealing. There was no website address on the business card and the email address for the auditor was an internet service provider address, not a company address.

Furthermore, before you provide any confidential documents to this person you should inquire about where those documents will be stored and what the disposition of those documents will be at conclusion of the audit. These people appear to be carrying around laptop computers that are not secured or safe-guarded and working out of their homes! Do you want your business information exposed to that? When the last AlaTax auditors left our office, they left only with what they came with. We allowed them to view documents in our office, but they took no electronic or paper documents of the client with them.

My first thought was to create a ten page form with questions regarding "client confidentiality" for the auditor to answer and sign. Who regulates these people? As for as I can tell, none of these auditors hold any kind of license. I have not met one yet that held a CPA or EA license. In fact, some of these auditors appear to be independent contractors working under other independent contractors.

Update September 27, 2010 - It appears that all RDS Alatax auditors have been converted to employee status or dropped.
"CRE" Designation - Certified Revenue Examiner

I noted that the last two auditors had the designation "CRE" after their names on business cards and signature lines in email correspondence as well as other written correspondence. The only thing my internet research turned up on the CRE designation was, Counselor of Real Estate. Sales Tax has no correlation, in fact nothing whatsoever to do with real estate.

Surely CRE is something different. I continued my search. I found that Auburn University has developed a program (two week course) to certify private examiners of sales and use tax in Alabama. To enroll, participants must have two years of work experience in governmental auditing OR a Bachelor's degree in Accounting.

These AlaTax Auditors will waste your Time!

If the auditor seems to be asking a lot of questions about one of your customers or vendors, the most likely reason is that they are looking for their next audit victim! It is the "domino effect", one audit leads to another audit. Do not let them take up your time planning their next audit.

Sending Your Data to ALATAX

I would advise any client to consider the value of customer lists, vendor lists and all of the internal data related to customers and vendors. The importance of such information varies from business to business. Secondly and of equal importance, you or your representative should be involved during each step of the audit process.

If you send your confidential business information off to be analyzed by an individual as a "desk audit", which might mean at the kitchen table of their home, you run the risk of them prematurely writing an audit report. Once they have written an audit report, you may find yourself in a position like Dr. York in the newspaper story referenced here. Should you disagree with any of their conclusions they might tell you to take it to court (your only recourse at that point).

We all know that going to court can often times cost more than just paying up. Unfortunately, the more times people "just pay up" instead of fighting, the more such problems are propagated.

Should a Private Commercial Business be Auditing other Commercial Businesses, Assessing and Collecting Taxes?

The economy has been hard, not just on businesses and individuals but local governments as well. It seems that AlaTax has had no trouble gaining entrance to city council meetings to give their sales pitch about how they can collect more monies for local governments (for a fee). In my research today I found two stories.

The first story was about the city of Piedmont firing AlaTax to save the $30,000 annual fee (minutes). The second story concerned the city of Brewton hiring AlaTax and stated "AlaTax charges a commission for the bills it collects, but the AlaTax salesperson addressing the council said some cities have passed ordinances that allow them to charge that cost to the customers".

The Internal Revenue Service tried using Private Companies for the Collection of Past Due Taxes and Quickly Abandoned the Project.

Personally, I was very much against that idea when the IRS implemented it for a short time. In the last year I've had the opportunity to represent three different clients in AlaTax audits. I can tell you from first hand experience that there are some very real potential problems with this scenario.

Questions you should ask the AlaTax auditor prior to the initial meeting:
  1. How (by what method) and why was I chosen (targeted) for this audit?
  2. Have you already projected the outcome of this audit prior to coming here?
  3. What is your projected outcome?
  4. How did you arrive at this preconceived outcome?
  5. Did you estimate how long this audit will take to complete prior to coming here?
  6. How did you estimate your time?

If the auditor is unwilling or unable to answer the above questions, ask to speak to their supervisor. You most likely will be shocked if you learn the truth. A sales tax compliance audit will cost you time, money and resources. The answers to the above questions may assist you in preparation for the audit, expedite your ability to address the issues and conclude the audit more quickly.

If the auditor should tell you that your business was chosen at random by AlaTax for the audit, I would ask the question again and document the response. I am of the opinion that there are very few, if any truly "random" AlaTax audits.

AlaTax/RDS Agreement Extending Period of Limitation for Assessment or Refund

In the last AlaTax audit we recently closed, AlaTax requested the taxpayer to sign an agreement extending the statute of limitations. The request was made at the same time they requested our Power of Attorney, prior to our initial meeting. We advised the client not to sign the agreement.

When the auditor arrived and asked for the form again, we stated that we believed the sales tax reports filed three years ago were correct and in compliance. I also said that if a problem was found, we could address it at that time. What are the chances of you getting a refund as a result of an AlaTax audit? If you over-paid sales tax, you will not get a refund if AlaTax can show that you over-collected the sales tax from your customers.

If your business is facing a sales tax audit, contact one of our representatives.