California FTB, CDTFA or EDD Tax Fraud Defense Attorney & CPA

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Each year, the state of California criminally prosecutes tax crimes that are initially detected and investigated by the criminal tax investigation functions of the FTB, CDTFA, and EDD. Taxes naturally become more complicated and burdensome the more assets you own and can become extremely complicated if you own or run a business. Fortunately, there is always a way to keep your tax bill as low as possible without exposing yourself to civil and criminal liability with the help of a skilled tax professional. However, some taxpayers, for one reason or another, choose to forego hiring a tax professional, or hire an unscrupulous one, and end up including false, incomplete, or misleading information on their returns. This can lead to a potential audit or California FTB, CDTFA or EDD criminal tax investigation, followed by criminal tax / fraud charges that come with severe penalties like lengthy jail sentences and massive fines & restitution that is non dischargeable in bankruptcy.

Related Federal Criminal Tax Exposure

The California taxing authorities share information with each other and with the federal government. For example, if during a sales tax audit a firm indication that cash basis sales were not being reported arises, the CDTFA will routinely alert the FTB as to the unreported cash sales especially where $100,000 of sales has not be reported in a single quarter. California shares the results of its audits and criminal tax investigations with the IRS. For this reason a California tax audit can quickly become your worst nightmare.

At the Tax Law Offices of David W. Klasing, our California Tax Fraud Defense Attorneys & supporting CPAs have years of experience helping clients that could potentially be charged with California tax / fraud crimes bring their case to the best possible resolution. The best thing you can do to prevent tax fraud charges from ever occurring is to consult with us before you file your taxes, or at least contact us once you realize that you made a mistake, or a series of them. If we rectify the issue before a California tax audit or criminal tax investigation is opened, we can likely bring you back into compliance without facing criminal prosecution. If you have already been charged, our lawyers will fight to mitigate the damage trough a plea bargain or work for a not guilty verdict at trial, depending upon the strengths or weaknesses of your individual circumstances. To set up a reduced rate initial consultation, call us today at (800) 681-1295 or schedule online.

What is California Tax Fraud?

The basic definition of California tax fraud is an act committed or attempted, in violation of the laws of the State of California to enable the taxpayer to illegally avoid his or her full tax liabilities. The term tax fraud is often used interchangeably with the term tax evasion, although the latter is just a type of tax crime that can constitute fraud. Tax evasion itself can be separated into two subclasses: evasion of tax assessment and evasion of tax payment. Evasion of tax assessment is, for example, deliberately underreporting income to avoid being assessed the correct amount of taxes in the first place. In contrast, evasion of payment might involve intentionally failing to disclose all your assets or hiding assets to avoid having to pay a tax bill that has already been assessed.

Aside from these types of tax evasion, there is a multitude of other actions that might constitute tax fraud. Tax fraud includes but is not limited to filing a tax return in someone else’s name without their permission, claiming deductions to which you are not entitled, filing false documents with a return, failure to collect employment taxes, and failing to file a tax return entirely. The key unifying feature of each of these crimes is that in order to be convicted, your behavior must have been willful. This means that your actions must have been purposely designed to defraud the state of California rather than an honest mistake. Note that tax fraud can also apply at the Federal level, typically for the same reasons.

If you underreport your income to the California Franchise Tax Board, which collects state income taxes in California, you could be charged with state-level tax fraud. Similarly, if you fail to collect and remit state payroll taxes, you could face charges stemming from an Employment Development Department (EDD) investigation.

What are the applicable CDTFA criminal tax statues in California?

Criminal penalties. (a) Any person required to make, render, sign, or verify any report who makes any false or fraudulent return, with intent to defeat or evade the determination of an amount due required by law to be made is guilty of a misdemeanor punishable as provided in Section 7153.
Any violation of this part by any person, except as otherwise provided, is a misdemeanor. Each offense shall be punished by a fine of not less than one thousand dollars ($1,000) and not more than five thousand dollars ($5,000), or imprisonment not exceeding one year in the county jail, or both the fine and imprisonment in the discretion of the court.

7153.5. Notwithstanding any other provision of this part, any person who violates this part with intent to defeat or evade the reporting, assessment, or payment of a tax or an amount due required by law to be made is guilty of a felony when the amount of unreported tax liability aggregates twenty-five thousand dollars ($25,000) or more in any 12-consecutive-month period. Each offense shall be punished by a fine of not less than five thousand dollars ($5,000) and not more than twenty thousand dollars ($20,000), or imprisonment for 16 months, two years, or three years, or both the fine and imprisonment in the discretion of the court.

7153.6. Notwithstanding Any Other Provision Of This Part, Any Person Who Purchases, Installs, Or Uses In This State Any Automated Sales Suppression Device Or Zapper Or Phantom-Ware With The Intent To Defeat Or Evade The Determination Of An Amount Due Pursuant To This Part Is Guilty Of A Misdemeanor.

Any prosecution for violation of any of the penal provisions of this part shall be instituted within five years after the commission of the offense, or within two years after the violation is discovered, whichever is later.

In addition, any person who uses an automated sales suppression device or zapper or phantom-ware shall be liable for all taxes, interest, and penalties due as a result of the use of that device.

FTB California Income Tax Fraud Investigations

The California FTB aggressively investigates and prosecutes California income tax fraud which it defines as intentionally underreporting or failing to report income.

Examples of California FTB Criminally Prosecutable Income Tax Fraud:

Claiming to be a resident of another state while residing in California
Making false claims for refunds or intentionally underreporting California taxable income
Closing and reopening a business to evade taxes
Falsifying business records
Participating in the underground economy

EDD California Employment Tax Fraud Investigations:

The Employment Development Department (EDD) administers the Unemployment Insurance, Disability Insurance, Paid Family Leave, and Employment Tax programs for the State of California and collects California employment payroll taxes.

The EDD is dedicated to detecting, deterring, and preventing the occurrence of fraud in these programs. They use a variety of methods to detect fraudulent activity. They fully pursue cases involving the evasion of payroll tax reporting obligations and routinely prosecute those responsible of the law.

Examples of EDD Criminally Prosecutable Employer Fraud:

Helping another person file a false Unemployment Insurance claim.
Paying employees secretly, off the record, or not properly reporting their wages to the EDD.
Not reporting when you hire new employees.
Reporting incorrect start dates.
Collecting and not remitting employment taxes – Employer withholds taxes from his employee’s wages but fails to report the wages and remit payroll taxes to the EDD and other agencies.
Pattern of opening and closing accounts with the EDD leaving unpaid tax balances to facilitate operating without paying the employment tax liabilities due, each employer registration opened under a different business and owner name.
Knowingly making false statements to the State Compensation Insurance Fund for the purpose of reducing the cost of his Workers’ Compensation Insurance.
Supplying false information so that current or former workers will be denied benefits to which they are entitled.

CDTFA California Cannabis, Cigarette and Tobacco, Fuel and Sales Tax Fraud Investigations:

CDTFA tax fraud defined as deliberate conduct intended to deprive the state of tax that is legally due. Failure of due care in keeping records or preparing returns coupled with intentionally ignoring duties and requirements to facilitate tax evasion.

Common types of CDTFA tax evasion:

Cannabis Tax Evasion (Illegal Cannabis Retailers)
Cigarette and Tobacco Products Tax Evasion
Motor Vehicle, Diesel and Jet Fuel Tax Evasion
Sales and Use Tax Evasion
- Failed to report a large portion of sales from a retail auto dealership.
- Collecting sales tax and failing to remit to the state of California
- Failure to file sales tax or use tax returns (online retailers)
- Intentional destruction of records
- Misuse of resale certificate to evade tax
- Registration of a vehicle, vessel or aircraft outside of California for the purpose of evading tax

Evidence of CDTFA tax evasion:

Falsified records, especially when more than one set of records is maintained.
Substantial discrepancies between recorded amounts and reported amounts which cannot be explained.
Willful disregard of previous CDTFA specific advice as to applicability of tax to certain transactions.
Failure to follow the requirements of the law, knowledge of which requirements is evidenced by permits or licenses held by taxpayer in prior periods.
Tax or tax reimbursement properly charged, evidencing knowledge of the requirements of the law, but not reported.
Transferring accumulated unreported tax from a tax accrual account to another income account.
Consistent pattern of underreporting or non-reporting

Does the FTB, CDTFA and EDD Discover Tax Fraud?

If a California FTB, CDTFA or EDD employee reviewing a return notes something suspicious, the matter might be referred for an audit or criminal tax investigation. The FTB, CDTFA and EDD extensively trains its agents to look for what are known within the agency as “badges of fraud,” or indicators on the return or the client’s records that evidence that the taxpayer is trying to defraud a California tax agency in some way. Some such badges of fraud that agents and auditors will be on the lookout for include obvious understatements of income (especially understatements of cash basis sales), especially when compared to prior returns, claiming substantial business deductions for personal expenses, attempts to conceal foreign or offshore bank or financial accounts, dealing in cash, using Zapper software, making flashy and expensive purchases while claiming a meager income, and a failure to cooperate with FTB, CDTFA or EDD agents.

How Can A Tax Attorney Assist Me with My California Tax Fraud Case?

At the Tax Law Offices of David W. Klasing, we can work to enter you into a voluntary disclosure program before California begins auditing you or opens a criminal tax investigation. If it is too late for this, we will leave no stone unturned fighting to mitigate the damage and limit your criminal exposure as much as possible. We will work to reach a resolution with the greatest possible reduction of civil assessments of additional tax penalties and interest and other unwanted criminal tax consequences that threaten your future. If you do not wish to take a deal that would result in a preindictment disposition of your case, we are always ready to fight for you at trial, but it is important to note that prosecutors in California criminal tax cases have a high conviction rate.

Call Our Experienced California Tax Fraud Attorneys Today

If you are facing potential tax fraud charges stemming from a California audit or criminal tax investigation you should take the matter extremely seriously. Such charges can lead to lengthy prison sentences, massive fines and financial penalties, and the loss of professional reputation or even a professional license in some cases. Your first call when you have the potential of being charged with California tax fraud should be to a skilled California tax fraud defense attorney like those at the Tax Law Offices of David W. Klasing, who can protect your rights and guide your case to the best possible conclusion. Call us today at (800) 681-1295 to set up a consultation.

We Are Here for You

Regardless of your business or estate needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.

In addition to our main office in Irvine, the Tax Law Offices of David W. Klasing has unstaffed (conference room only) satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad and Sacramento. During the COVID-19 pandemic, our staff are working from home, but have full virtual meeting capability.

Our office technology allows clients to meet virtually via GoToMeeting. With end-to-end encryption, strong passwords and top-rated reliability, no one is messing with your meeting. To schedule a reduced rate initial consultation via GoToMeeting follow this link. Call our office and request a GoToMeeting if you are an existing client.