It has become a somewhat unpleasant autumn ritual for many taxpayers:  should we agree to a request from the Louisiana Department of Revenue (the “Department”) for more time to audit.  Once the decision to agree to an extension has been made, thanks to the COVID-19 pandemic, signing that waiver has become more complicated.  Traditionally, the Department requests that a taxpayer under audit sign a waiver of prescription each fall for any tax period that will prescribe at the end of the year (for non-Civil Code aficionados, prescription is analogous to the statute of limitation).  Unless it has been interrupted or suspended, the prescriptive period for assessing taxes in Louisiana, except real property tax, is three years from December 31 of the year the tax is due.  Hence, the push in the fall to get the necessary waivers signed before the end of the year.  As discussed below, the Department now requires prescription waivers to be signed electronically and many taxpayers have found the Department’s procedures associated with electronic signatures challenging.

For its part, the Department’s anxiety over the accuracy of prescription waivers is the result of a couple of losses in court related to prescription waiver signings, including the Louisiana Court of Appeals of the Fifth Circuit’s decision in Bridges v. X Communications, Inc.[1]  At the time of that case, the procedures followed by auditors responsible for getting waivers signed on time seemed to be slightly less formal, with the auditor determining the correct person at the company to sign a waiver in any audit in the auditor’s inventory.  In X Communications, the Department’s auditor accepted a signed prescription waiver from a person unauthorized to act for the company.  As a result, the court found that the waiver did not stop prescription from running and the Department was forced to drop the case for the prescribed year.

To ensure that waivers are executed correctly, the Department instituted a more general policy of requesting Agreements to Suspend Prescription each fall from all taxpayers in audits covering tax periods set to prescribe that year end.  Because of X Communications and similar cases, the Department has become very meticulous about making sure the waivers are properly executed by a person vested with the authority to sign and that all the instructions have been properly followed.  If the waiver is not executed exactly in accordance with the Department’s exact instructions, the waiver will be rejected and sent back to the taxpayer for re-execution.  Issues with properly executing a waiver typically arise when a busy corporate officer does not follow the Department’s instructions to the letter.    Those issues can result in the corporate officer having to re-execute the waiver in a manner that complies with the Department’s instructions.

Because many corporate officers and Department personnel are now working remotely due to the pandemic, the Department now requires all prescription waivers be executed electronically through DocuSign.   Affected taxpayers will receive an email request from “LDR DocuSign Team via DocuSign” that includes a secure link to the DocuSign “Default Waiver” for each tax type in the audit(s).  A person with the authority to bind the company must properly complete and electronically sign the DocuSign Waiver within five business days of receiving the email containing the document.

If the waiver request is emailed to someone at the taxpayer’s business who is not an authorized signer, the recipient must send the document to a person authorized to execute this document.  This can be done by opening the document and clicking “Other Actions” and then selecting “Assign to Someone Else” and then, after the appropriate information is entered, the “Default Waiver” or prescription agreement will be sent to that person to complete, sign and “Finish” the submission of the document.  To mitigate issues that arose related to the Department’s DocuSign procedures earlier in the year, the Department has stated that it is willing to work with taxpayers that do not wish to file electronically or are not capable of doing so.  Those taxpayers will need to reach out to the Department after receiving the email for instructions on how to file manually.

In many instances, executing a waiver can prevent the issuance of an artificially inflated or arbitrary assessment and allow the taxpayer additional time to work with an auditor to complete the audit, which may result in resolution of the audit. If the taxpayer does not respond to the Department’s request for the electronic waiver, the Department may issue an assessment or file suit to collect tax.  However, before agreeing to a prescription waiver a taxpayer should carefully consider their specific facts and circumstances of doing so because it may be neither necessary nor advisable to agree to a prescription waiver in the taxpayer’s specific circumstances.  The decision as to whether or not to sign a waiver in the first place should be made on a case-by-case basis.

For additional information, please contact: Jaye Calhoun at (504) 293-5936; Willie Kolarik at (225) 382-3441, or Mike McLoughlin at (504) 620-3351.

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[1] Bridges v. X Communications, Inc., 03–441 (La. App. 5th Cir. 11/12/03), 861 So.2d 592, writ denied, 03–3431 (La.2/20/04), 866 So.2d 830.