With the Florida Department of Revenue (FDOR), the primary activity is overseeing taxpayers - handing registrations and returns. Sales tax is the primary tax overseen by the FDOR. The most common issues with sales tax for the FDOR is filing returns that are not paid (or only partially paid) and unfiled returns. With unpaid or partially paid returns, the FDOR's collections staff follows up through calls and collection letters to make sure tax, penalty, and interest (and sometimes associated administrative collection processing fees) are paid to the FDOR. When the FDOR isn't initially successful, it has a number of "enforcement activities" it can use to recover amounts owed. Traditionally, bank freezes were the most popular method to "ensure" compliance (payment). However, recent activity by the FDOR has shown an increase in the use of criminal investigations for noncompliant taxpayers. This article looks at criminal investigations in more detail.
The FDOR exercises its criminal investigation functions pursuant to section 212.15 Florida Statutes ("F.S."). That section proscribes penalties for unpaid or inaccurate (fraudulent) returns. There is a separate felony charge for six consecutive unfiled sales tax returns. This article will not look at that as it is a more specific situation - but one that I am seeing used more lately with the filing of criminal charges. The primary focus of a criminal investigation by the FDOR is the theft of state funds. Germanely, this is collecting and failing to remit sales tax (outside of the audit process which is a civil matter though practitioners and businesses should be aware of the possible criminal repercussions).
The most common "trigger" for a FDOR criminal investigation is filing but not paying sales tax returns. Typically, the FDOR will try collection activity first. This involves FDOR collections calling and mailing regarding the unpaid tax liability and related P&I (penalty and interest). There is no set time or amount of contacts the FDOR will utilize before the matter "transfers" to the investigations division. When the collector is "frustrated" or otherwise believes further collections activity is "fruitless," the collector will refer the account (taxpayer) to the investigations section. This initiates an investigation into the taxpayer.
Almost invariably, the investigator begins work "in the background." There will be no initial contact to the taxpayer. Instead, the FDOR investigator will get "internal" DOR information on the taxpayer and its account. This will also include public information from Sunbiz. Most likely, one of the first things done by the FDOR investigator will be to subpoena bank records for the investigation period. The reasons are twofold. One, banks are notoriously slow to respond to subpoenas. Two, the FDOR investigator wants to see who is authorized to sign on the account. More than likely this will be one of if not the only officer/manager of the taxpayer.
The FDOR investigator then turns their attention to "proving" collection of tax with the failure to remit it to the State. This can take some time and effort if the taxpayer has filed and paid returns. If that isn't the case, then the FDOR investigator has a lot less work to do. The FDOR investigator is going to rely on the sales tax registration (Form DR-1) by the business for the "knowing" component of the investigated crime. When applying or a sales tax registration, the applicant requires the signor of the application to initial (or check) statements at the end of the form indicating "knowledge" that sales tax is state property and collecting and failing to remit it is a crime. Also note that during collection activities prior to this point, FDOR collectors generally will tell taxpayers this same fact/point. FDOR collections generally "mention" (some interpret this as threaten) an investigation for collecting and failing to remit state property (tax) and collectors almost always make notes to this effect that the taxpayer "knows" this fact. Account notes are included in FDOR investigator reports that go to a state attorney's office for the filing of criminal charges.
When this preliminary work is done, the investigator usually then begins contact with "outside" people related to the investigated taxpayer. This can involve letters to former customers during the investigation period. It can also include interviews with former employees (since the investigator can get reemployment tax information). Whenever the taxpayer doesn't own its property, the FDOR investigator will speak with the taxpayer's landlord. These contacts are all to find out who the interviewed/contact individuals dealt with to determine who is the "responsible person" relative to collecting/reporting/remitting sales tax.
After this work, the FDOR investigator likely is close to completing their investigative report. At this point, the investigator will reach out to the taxpayer. This usually involves a request (or subpoena) for business records. This "request" will usually give a rather short time to respond. The investigator most likely will also ask for an interview with at least one of the officers/managers. It also will most likely be the person who is at the center of possible charges. If the taxpayer grants an interview (potentially very unwise), that person should expect at least two investigators to attend the meeting. This is not an accident by the FDOR. This gives them two "witnesses" to include in the report to the state attorney's office if/when charges are recommended to be (and usually are) filed.
Following business records and any interview that might or might not be provided, the investigator essentially is done with their report. It does not take long for the FDOR investigator's report to be finalized and approved to be sent to the state attorney's office. The longer portion of this process generally is getting the report to the state attorney's office and then the filing of charges. FDOR investigators used to mail reports to the State for charges. It appears now that the DOR investigators generally hand deliver them. It is uncertain if or how much the process is sped up. From this point, it takes a varying amount of time for the report to get to the Economic Crimes Unit for the county/state attorney's office to review and file charges. These reports usually aren't the highest priority as defendants aren't in custody and a priority. Regardless, ultimately, charges are going to be filed if nothing is done before that time.
It is important to have an idea of the process in case you or your client are involved in or the subject of a FDOR investigation. As soon as you learn of the existence of a FDOR investigation, time is of the essence to work if you and/or your client are going to get the investigation closed out without charges being filed. It is important to immediately determine if and to what extent there is any collected and unremitted tax. Tax that should have been collected and wasn't will be the issue for other FDOR collection activity. It will not be the concern of the criminal investigation. The issuance/existence of a subpoena is another wrinkle to the fold that also makes time of the essence for working with the FDOR investigator and the associated investigation.
Since there usually is limited time from investigator contact with a taxpayer to the filing of charges, it is important that you and/or your client be prepared for this process to move quickly. It is important to know what to expect and how to work within the process to get it resolved in the best way possible for the most beneficial outcome - which usually involves no charges filed. My firm has handled numerous FDOR investigations throughout the state. You and/or your client can reach out for a free initial consultation to most quickly start working to correct the situation. Do not hesitate to reach out with any questions you might have for any possible or actual FDOR investigation. We are available to help in any way possible and can be contacted through our website.
About the author: Mr. Parker is a partner in the Law Offices of Moffa, Sutton, & Donnini, P.A., based in the firm's Tampa office. Mr. Parker's practice concentrates on sales and use tax and includes criminal defense of sales tax cases and state tax audits/controversies proceeding from audit through administrative litigation involving sales and use tax and all other state taxes including reemployment tax, communication service tax, and cigarette & tobacco tax. Mr. Parker also handles matters involving the Department of Business and Personal Regulation and Office of Financial Regulation and the industries they oversee. Mr. Parker received his accounting degree, law degree, and L.L.M. in Taxation from the University of Florida. If you have any questions please do not hesitate to contact him at 813-775-2132 or MatthewParker@FloridaSalesTax.com or his firm bio.
About the law firm: At the Law Office of Moffa, Sutton, & Donnini, PA, our primary practice area is Florida taxes, with a very heavy emphasis in Florida sales and use tax. We have defended Florida businesses against the Florida Department of Revenue since 1991 and have over 100 years of cumulative sales tax experience within our firm. Our partners are both CPAs/Accountants and Attorneys, so we understand both the accounting side of the situation as well as the legal side. We represent taxpayers and business owners from the entire state of Florida. Call our offices today for a FREE INITIAL CONSULTATION to confidentially discuss how we can help put this nightmare behind you.
ADDITIONAL RESOURCES
Florida Sales Tax Crimes | FL Sales Tax Criminal Attorney,
FL SALES TAX CRIMINAL INVESTIGATION (floridasalestax.com), published December 16, 2016, by Amanda Levine, Esq.
FL DOR – Prosecuting Criminally Based on IRS 1099 Data (floridasalestax.com), published February 6, 2020, by Amada Levine, Esq.