Pennsylvania Code › Title 61 - REVENUE › Part I - Department of Revenue › Subpart A - General Provisions › Chapter 8a - ENFORCEMENT › Section 8a.6 - Selection of sample

Current through Register Vol. 54, No. 28, July 13, 2024
When a test audit is employed, the selection of the block
					 sample, statistical sample or clustered sample shall be based on the
					 Department's analysis of the taxpayer's business operations and records, and
					 shall reasonably represent the population from which the sampled transactions
					 were selected. The Department may utilize stratification levels in performing
					 statistical sampling. When a block sample method is chosen, the Department will
					 select blocks whose average is approximately equal to the estimated average of
					 key characteristics for the audit period. Examples of key characteristics
					 include sales, taxable to gross sales ratio, purchases or number of
					 transactions.
(1) In determining
				  whether to exclude the values of certain transactions from the sample, the
				  Department will identify the transactions in the sample that are
				  outliers.
(2) For the purpose of
				  identifying outliers, the Department will determine the transaction difference
				  for each transaction in the sample. The transaction difference shall be the
				  difference between the transaction's audited value and its value reported to
				  the Department. Any transaction difference with an absolute value greater than
				  2% of the total audited amount of the total sample shall be considered to be a
				  suspected outlier. If the difference is no greater than 2% of the total audited
				  amount of the total sample, no adjustment will be made. If the difference is
				  greater than 2% of the total audited amount of the total sample, the following
				  test will be done: Subtract the average of the transaction differences,
				  omitting the suspected outlier, from the suspected outlier and divide by
				  one-fourth of the range in values of the transaction differences, omitting the
				  suspected outlier. If the absolute value of the ratio is four or greater, the
				  suspected outlier shall be confirmed as an outlier. If there is more than one
				  suspected outlier, this test shall be applied sequentially to all suspected
				  outliers. If the population is stratified this process will be completed for
				  each stratum in which sampling has been done.
(3) The following steps will be taken with
				  respect to all confirmed outliers:
(i) The
				  taxpayer will be notified concerning the outliers and requested to furnish
				  evidence that will be considered by the auditor in determining the audited
				  finding. If, upon examining the further evidence, the auditor agrees that a
				  smaller difference between the reported amount and the audited amount is
				  justified, the auditor will replace the original transaction by the adjusted
				  finding.
(ii) If sufficient
				  evidence is not provided, the outlier will be eliminated from the sample and
				  audited independently. The audit finding on the outlier will be computed
				  separately and the audit finding will be added to or, if negative, subtracted
				  from the result of the projection for the remaining sample.
(iii) The sample values, adjusted for
				  outliers as provided in subparagraphs (i) and (ii), will be used for projection
				  of the total audit finding and its standard error.