A Maryland tax audit is the Comptroller’s review of a state return to confirm the income, deductions, and credits you reported. The office can look back three years from the filing date or due date, whichever is later, and there is no time limit if the return was never filed or was fraudulent. If the auditor finds a problem, you’ll get a Notice of Proposed Assessment, and you have 30 days to protest it before it becomes final.
Why Your Return Got Picked
Most audits start with automated matching. The Comptroller compares your Maryland return to your federal return under a data-sharing agreement with the IRS. If you reported $85,000 to the IRS but $72,000 to Maryland, that gap flags your account. The same screens catch people who filed a federal return but never filed in Maryland.
The Revenue Administration Division also runs industry screens aimed at sectors where cash transactions and underreporting are common, and it pulls in third-party data like 1099s, mortgage interest statements, and brokerage reports. A smaller slice of audits is purely random, so a clean return can still land in the pool. Filing every year and keeping your Maryland numbers consistent with your federal numbers removes the most common triggers, but nothing eliminates the possibility entirely.
How Far Back the Comptroller Can Look
The standard window is three years from the date you filed or the date the return was due, whichever is later. File your 2023 return on March 15, 2024 with an April 15 deadline, and the clock starts April 15. File late on June 1, and the clock starts June 1.
Two exceptions remove the limit entirely. If you never filed a return for a given year, there is no statute of limitations. The same is true if the Comptroller can show the return was fraudulent. A missing year stays open forever, which is why filing matters even when you owe nothing or expect a refund.
What the Examination Looks Like
The notice you receive will name the tax year under review and the specific items the auditor wants to see. Two formats are possible. A desk audit is handled by mail: you send copies of requested documents, the auditor reviews them, and findings come back in writing. A field audit means an auditor visits your home or business to look at records in person. Field audits are more common for businesses, complex returns, or situations where the record volume makes mailing impractical.
Either way, the auditor is matching your supporting documents to the numbers on the return, looking for unreported income, unsupported deductions, or math errors. Reviews can run from a few weeks to several months. Delays in producing records lengthen the process and tend to make the auditor dig harder.
Records to Pull Together
Start with your Maryland return (Form 502 for residents, Form 505 for nonresidents) and the matching federal return. Then gather W-2s, 1099s, and receipts for any deduction or credit you claimed, such as the Maryland Pension Exclusion or the Child and Dependent Care Credit. If you’ve lost originals, the Comptroller’s website provides copies of prior state filings, and the IRS can send federal transcripts.
Organize everything by the line numbers on the return. Every figure on the return should have paper behind it. Maryland requires sales-related records to be kept for four years, and holding income tax records at least that long is a sensible floor given the three-year audit window plus processing time.
The Notice of Proposed Assessment
When the examination ends, you’ll receive a Notice of Proposed Assessment showing the auditor’s changes to your tax, along with interest and penalties. This is not a final bill. It is the Comptroller’s opening position, and you have 30 days from the mailing date to protest.
Thirty days is a hard deadline. Miss it, and the assessment becomes final and the right to appeal is gone. File the protest online through the Comptroller’s MyCOMConnect portal or mail a written protest to the Hearings and Appeals office in Baltimore. Include your name, address, tax identification number, the years at issue, a clear explanation of your disagreement, and documents that support your position.
After a review and hearing, you’ll receive a Notice of Final Determination.
Appealing to the Maryland Tax Court
If you still disagree after the Final Determination, you can appeal to the Maryland Tax Court within 30 days of the determination’s mailing date. There is no filing fee. The court will accept an informal letter as a valid filing if it arrives inside the 30-day window, but you’ll need to follow up with the formal petition form within another 30 days. The petition must be signed by you or by a Maryland-barred attorney.
You have to exhaust the Comptroller’s administrative process first; the Tax Court will not hear a case that skipped the protest stage. If you file a protest and get no response within six months, the law treats the silence as a denial, and you can proceed to court from there.
Penalties, Interest, and When They Can Be Waived
If the audit shows you underpaid, both penalties and interest are added. Late payment penalties can reach 25 percent of the unpaid tax. Interest runs from the original due date of the return until the balance is paid. The Comptroller sets the annual interest rate by October 1 for the following calendar year; for 2025, the rate was 11.4825 percent.
Penalty abatement is possible if you can show reasonable cause. Under Tax-General § 13-714, a tax collector may waive penalties when the circumstances justify it. Reasonable cause generally means you used ordinary care but still couldn’t comply because of something like a serious illness, a natural disaster, or being unable to access necessary records. Not knowing you owed the tax, or relying on a preparer who made an error, usually does not qualify on its own. Request the waiver in writing with supporting documentation. Interest is statutory and cannot be waived.
If You Can’t Pay the Balance
Installment agreements are available through the Comptroller’s online portal; you’ll need the notice number from a recent tax bill. If your situation doesn’t fit the online form, call the Collections Section at 410-974-2432 or 1-888-674-0016. Interest keeps accruing on the unpaid balance while you’re on a plan, so paying as much as possible upfront lowers the total cost.
For taxpayers in genuine financial hardship, Maryland runs its own Offer in Compromise program that settles the debt for less than the full amount. The bar is high, and you must meet every one of these conditions:
- At least two years have passed since the liability arose.
- You’re current on all required returns (for individual income tax, the current year plus the prior six).
- You have no issue currently under appeal.
- You’re not in an open bankruptcy proceeding.
- You can show you’re unlikely to pay the full balance in the foreseeable future based on your income, expenses, and assets.
- If a business owes the debt, the business must be closed.
The two-year waiting period catches people off guard. If you just received an assessment, an Offer in Compromise is not available yet, and an installment agreement is usually the bridge.
What Happens If You Ignore the Assessment
Once a tax debt is final and unpaid, the Comptroller has several collection tools and uses them.
- A tax lien can be filed in the circuit court of the county where you live or own property, creating a public claim that blocks the sale or refinancing of real estate until the debt is cleared.
- Under Tax-General § 13-811, the Comptroller can notify your employer by certified mail to withhold a portion of your wages. The exempt amount follows the same limits as a standard wage attachment under Maryland’s Commercial Law Article, and your employer becomes personally liable for anything paid to you in excess of what the notice allows.
- The Comptroller can levy funds directly from your bank accounts without going to court, because the authority is written into the tax code.
- Maryland law requires anyone with unpaid, undisputed state tax to resolve the balance before renewing a driver’s license or vehicle registration. The same hold applies to professional licenses issued through agencies such as the Department of Health and the Department of the Environment.
The license hold tends to surface at the worst moment. You arrive at the MVA to renew, and you’re told there’s a tax hold. From there, you either pay the balance or set up a payment arrangement with the Comptroller before the renewal can go through.
When to Bring in a Representative
You can handle an audit yourself, but you’re also entitled to have a CPA, enrolled agent, or attorney communicate with the Comptroller on your behalf, attend interviews, review proposed adjustments, and negotiate. Authorizing a representative generally requires filing a power of attorney form with the Comptroller. For taxpayers who can’t afford professional help, Maryland’s Volunteer Lawyers Service and Low Income Taxpayer Clinics may assist at no cost.
Representation matters most when the issues are complex: multistate income allocation, business deductions, or any hint of fraud. A straightforward desk audit over a missing W-2 is usually manageable on your own. A field audit of a business, or any assessment with penalties running into the thousands, is where paid guidance tends to pay for itself.
When an Audit Dispute Becomes Criminal
Almost all audit disputes stay civil, resolved through additional tax, penalties, and interest. Willfully failing to file a required Maryland income tax return is the line that crosses into criminal territory: a misdemeanor carrying a fine of up to $10,000, imprisonment up to five years, or both. The operative word is “willfully.” The Comptroller has to show you deliberately chose not to file, not that you made an honest mistake. Errors discovered during an audit almost never lead to criminal charges. Flat-out refusing to file when you know you owe, or deliberately falsifying figures, is where that exposure starts.