2017 Arizona Revised Statutes
Title 42 - Taxation
§ 42-1108 Audit; deficiency assessments

42-1108. Audit; deficiency assessments

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 written notice of its determination of a deficiency by mail, and the deficiency, plus penalties and interest, is final forty-five days from 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 from 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. 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 from the date of the notice and demand.

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

E. Any amount of tax in excess of that disclosed by the return due to a nonaudit adjustment, as listed in subsection F 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 notice, and the assessment or collection of the amount of tax erroneously omitted in the return is not prohibited by this article.

F. 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 personal exemptions, dependents 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.