Statewide Compliance and Outreach (SCOP)

So, you’ve been contacted, either in person or by letter, by the California Board of Equalization’s, Statewide Compliance and Outreach Program (SCOP)…what do you do now? Well, let me provide you with some background information before we answer that question.

First, let me discuss what the unit is supposed to be doing. The mission of SCOP, at least in theory, is one that’s beneficial to taxpayers. In short, they are supposed to be educating business owners on their sales/use/property tax responsibilities. In a business owner’s context, this education is supposed to help taxpayers collect & remit sales and use tax properly (including providing guidance on how to support a claimed exemption). If the taxpayer is ever selected for audit, the idea is that it would go smoothly because of this previous interaction and education. Along with providing education and answering questions, SCOP can (and they are supposed to) help business owners file amended returns if the original returns are under or overstated. Again, on paper, this all sounds great. Unfortunately, the vast majority of SCOP specialists we come into contact with on a consistent basis are disregarding the presented noble purpose of this unit.

Instead of educating and assisting taxpayers, SCOP has turned into an extension of the Board’s Audit Department. SCOP frequently makes voluminous records requests, conducts observations of the business for the purpose of estimating gross receipts and even employs block sampling methods to examine documentation; all of which is done by the audit staff when they audit a business. SCOP also commonly obtains and relies on statements made by entry-level employees, who may have little involvement with the day-to-day operations of the business and/or no involvement with the financial aspects of the business, to establish a basis for issuing a tax assessment. The efforts and methods employed give a strong impression that SCOP is more interested in increasing state revenue and generating audit leads than it is with educating taxpayers.

In a recent case involving a taxpayer in Irvine, a SCOP specialist threatened to shut down our client’s business, throw them in jail and notify the FTB, EDD and other state agencies of their purported wrongful conduct. Granted, this is an extreme example, but unfortunately it’s not dissimilar to other cases our firm has been involved with. In another case out of the Bay Area, a SCOP specialist again told our client that they needed to amend their returns and pay additional tax, amounting to almost $500,000, or they would shut down their business. We were able to resolve both of these cases without any audit work being performed by the SCOP specialist and without any additional tax being assessed. These examples demonstrate the extent to which the SCOP team will attempt to strong-arm a taxpayer into cooperating with their demands.

So, getting back to the initial question…what do you do when you are contacted by SCOP? First, make certain the person with which the SCOP person interacts is familiar with your business. Misinformation is a significant cause for problems. Second, make sure the SCOP representative is not overreaching, and don’t hesitate to question what they’re doing. If the SCOP representative is acting reasonably, and clearly seeking to provide education, and not perform an audit of the business, then we recommend cooperating with them. If they are, they can be a valuable resource for you and your business. Be sure to obtain any advice in writing! Remember though, they are technically not a part of the Audit Staff nor should they be acting in such a capacity. Reviewing a small sampling of records in an attempt at determining whether your business is in compliance is one thing, but if the SCOP agent is requesting substantial documentation from you, or making threats of a liability, potential closure of your business or jail time, you should know that this is not appropriate (nor within their stated authority).