§ 35.1. Tax examinations and assessments.
(a) Examinations. Tax examinations shall conform with the following:
(1) Verification of returns, documents, and transactions. The Department, by its authorized agents, has the power to enter upon the premises of a taxpayer or supposed taxpayer, and of an agent, representative, employe, or accountant of the person, or the custodian of the person’s records, for the purpose of making inspections, examinations, and verifications of books, records, papers, and other documents, to ascertain and assess tax imposed by the act. For this purpose, taxpayers are required to admit the Department and its authorized agents upon the premises, and to provide the Department and its agents with the necessary means, facilities and opportunities to make inspections, examinations, and verifications.
(2) Audits. Audits shall be conducted in accordance with Chapter 8a (relating to enforcement).
(3) Examination under oath and compulsory production of documents. The Department by its authorized agents may also, upon reasonable notice, examine a person under oath concerning taxable sales or use by a taxpayer, or concerning another matter which relates to the enforcement or administration of the act. For this purpose, the Department has the power to compel, by legal process, the production of books, papers, records, or other documents, and the attendance of persons, whether as parties or witnesses, whom it believes to have knowledge of the matters. Hearings and examinations for this purpose are conducted in the manner provided by relevant provisions of the Fiscal Code (72 P. S. § § 1—1855).
(4) Retention of records. Records required to be maintained under the TRC or § 34.2 (relating to keeping of records) shall be retained for a period not less than 3 years from the end of the calendar year to which they relate.
(5) Records of nonresidents. A nonresident who maintains records under § 34.2 is required to maintain, keep and retain the records at all times at a place within this Commonwealth, unless authorized by the Department in writing to maintain the records at a place outside this Commonwealth. Authorization to maintain records outside this Commonwealth is conditioned upon agreement to and compliance with those requirements which the Department may impose, including the assumption by the nonresident of an obligation to pay the reasonable expense of examination by the Department or its agents of records located outside this Commonwealth.
(6) Effect of noncompliance. Criminal and other sanctions imposed for failure to register or maintain required records or permit examination of relevant materials or persons are discussed in § § 35.2 (relating to interest, additions, penalties, crimes, and offenses) and 34.1 (relating to registration).
(b) Assessments. Tax assessments shall conform with the following:
(1) Underpayment of tax. Within a reasonable time after a return is filed, the Department will examine it and, if the return shows a greater tax due or collected than the amount of tax remitted with the return, the Department will issue an assessment for the difference, with an addition of 3.0% of the difference, which shall be paid to the Department within 10 days after a notice of the assessment has been mailed to the taxpayer. If the assessment is not paid within 10 days, there shall be added thereto and paid to the Department an additional 3.0% of the difference for each month during which the assessment remains unpaid, but the total of additions may not exceed 18% of the difference shown on the assessment.
(2) Understatement of tax. If the Department determines that the return of a taxpayer understates the amount of tax due, it will determine the proper amount and ascertain the difference between the amount of tax shown in the return and the amount determined. The difference is referred to as the deficiency. A notice of assessment for the deficiency and the reasons therefor will be sent to the taxpayer. The deficiency shall be paid to the Department within 30 days after a notice of the assessment has been mailed to the taxpayer.
(3) Failure to file return. If a taxpayer fails to file a return required by Article II of the TRC (72 P. S. § § 7201—7282), the Department may make an estimated assessment, based on information available, of the proper amount of tax owing by the taxpayer. A notice of assessment in the estimated amount will be sent to the taxpayer. The tax shall be paid within 30 days after a notice of estimated assessment has been mailed to the taxpayer.
(4) Authority to establish effective rates by business classification. The Department is authorized to make the studies necessary to compute effective rates by business classification, based upon the ratio between the tax required to be collected and taxable sales and to use the rates in arriving at the apparent tax liability of a taxpayer.
(5) Interest, additions, penalties, and crimes. When required, interest, additions, penalties or criminal sanctions will be imposed under the TRC. See sections 265—268 of the TRC (72 P. S. § § 7265—7268) and § 35.2 (relating to interest, additions, penalties, and crimes and offenses).
(6) Appeal. An assessment based upon this subsection will be binding upon the taxpayer unless the assessment is altered on appeal to the Board of Appeals, Board of Finance and Revenue or the court.
(c) Period covered by assessment. The period covered by an assessment shall conform to the following:
(1) Underpayment and understatement. Where a return has been filed and the amount of tax is due to either underpayment of tax or understatement of tax, the amount of tax thus imposed shall be assessed within 3 years after the date the return was filed or the end of the year in which the tax liability arose, whichever occurs last. The assessment may be made any time during the period even if the Department has made previous assessments against the taxpayer for the year in question, or for a part of the year. No credit may be given for a penalty previously assessed or paid.
(2) Failure to file return. If a return is not filed, the amount of tax due may be assessed and collected at any time as to taxable transactions not reported.
(3) False or fraudulent return. Where the taxpayer willfully files a false or fraudulent return with intent to evade the tax imposed by the act, the amount of tax due may be assessed and collected at any time.
(4) Extension of limitation. If the taxpayer has consented, in writing, before the expiration of the period prescribed for the issuing of an assessment of tax, that the period be extended, the amount of tax due may be assessed any time within the extended time. The extended period may be extended further by subsequent consents, in writing, made before the expiration of the extended time.
(d) Notice of assessment. Notice of assessment shall conform with the following:
(1) Issuance. Upon making an assessment, the Department will issue a notice of it and will serve the notice upon the person assessed.
(2) Contents. The notice will set forth the reasons for the assessment, the amount and date thereof, the place where and the time within which the person assessed is required by law to petition for review, and will notify the person that upon the failure to do so, the assessment will be binding.
(3) Service. Service of notice shall conform with the following:
(i) Except as provided in this paragraph, as a prerequisite to a valid determination of personal liability, notice shall be served upon the person assessed by sending a copy of the notice by first-class mail to him at the following places:
(A) At the last known business or home post office address of the person.
(B) At the address as the person may have designated, in writing, as the address at which the person desired notice to be sent.
(ii) If the person assessed has no post office address within this Commonwealth known to the Department, notice shall be served upon the person by sending a copy of the notice by registered mail, return receipt requested, to the person assessed at the last known address of the person’s principal place of business, or at another address or in another manner which is reasonably calculated to give the person actual notice of the assessment. This section does not diminish or postpone the right of the Commonwealth to secure a claim it may have with respect to property of the person assessed which is located within this Commonwealth.
Authority The provisions of this § 35.1 issued under section 270 of the Tax Reform Code of 1971 (72 P. S. § 7270).
Source The provision of this § 35.1 amended through October 11, 1985, effective October 12, 1985, 15 Pa.B. 3651; amended March 27, 1998, effective March 28, 1998, 28 Pa.B. 1522; corrected April 17, 1998, effective March 28, 1998, 28 Pa.B. 1836. Immediately preceding text appears at serial pages (102547) to (102550).
Notes of Decisions The regulation governing service of notice requires the Department to mail the essential notice to such address as a person may have designated in writing, even if that address is out-of-State, as well as mailing to the mailing address in Pennsylvania. Evergreen Helicopters, Inc. v. Commonwealth, 516 A.2d 124 (Pa. Cmwlth. 1986).
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