How Do You Appeal an FTB Audit?

The Internal Revenue Service (IRS) administers tax laws and penalties on the federal level. In California, the state equivalent to the IRS is the Franchise Tax Board (FTB), which collects and reviews California tax returns for businesses and individual taxpayers. Like the IRS, the FTB routinely conducts audits to ensure that businesses and individuals are reporting their income, paying their tax debts, and complying with other state tax laws under the California Revenue and Taxation Code (RTC). And, like the results of an IRS audit, the results of an FTB audit may be challenged, or “appealed,” by taxpayers who disagree with FTB findings. The question is, how does a California taxpayer begin this process? In this article, our California tax attorneys will help you understand some basics about the rules and procedures for challenging (“protesting”) an FTB decision through the Office of Tax Appeals (OTA).

Did You Receive a Notice of Proposed Assessment (NPA) from the Franchise Tax Board (FTB)?

You may be reading this article because you recently received a Notice of Proposed Assessment (NPA) from the FTB informing you of unresolved tax liabilities. There are two versions of the NPA:

  1. FTB Form 7275 (Personal Income Tax Notice of Proposed Assessment Information), which is for individuals
  2. FTB Form 5830C (Business Entity – Notice of Proposed Assessment Information), which is for businesses

As FTB Form 7275 states, “The Notice of Proposed Assessment (NPA) informs you that we intend to assess additional tax and/or penalties. You have a right to protest the NPA, which must be submitted within 60 days of the NPA date, or submitted by the Protest By date.” This reflects the provisions of California Revenue and Taxation Code § 19041(a), which states, “Within 60 days after the mailing of each notice of proposed deficiency assessment the taxpayer may file with the Franchise Tax Board a written protest against the proposed deficiency assessment, specifying in the protest the grounds upon which it is based.”

If you received an NPA from the Franchise Tax Board, do not panic. As state law provides, you have an opportunity to appeal, or protest, the FTB’s findings. If your protest is successful, you may not have to pay the additional tax debts or tax penalties the FTB would otherwise assess against you.

As the FTB explains in FTB Notice 2018-01, each protest will be assigned to an FTB official called a “hearing officer” for review. This hearing officer might represent the FTB’s Legal Division or its Audit Division, depending on the situation. If the protest is directed to a hearing officer in the Legal Division, it will be referred to as a “docketed protest.”

Because the FTB recently changed its internal procedures for processing Legal Division (docketed) protests, taxpayers would be wise to familiarize themselves with the updated regulations, which are discussed at length in FTB Notice 2018-01. Our Irvine tax attorneys will discuss these procedures momentarily, but first, will provide a brief overview of how to protest a proposed FTB assessment.

How to Protest a Proposed FTB Assessment Online or in Writing

You may make your protest online, by mail, or by fax. Needless to say, filing online ensures faster delivery with no risk of lost mail. You may make a protest online by following these instructions:

  1. Navigate to the FTB website.
  2. If you have an account already, log in. If not, you will need to register as a new user.
  3. Once you have created or logged into your account, click the “Account” link.
  4. Click the “Proposed Assessments” link.
  5. Choose the correct NPA number, and follow the prompts to complete the online submission process.

If you are submitting a written protest, which may be either mailed or faxed, be sure the protest includes all of the following information. Failure to include the following may cause processing delays that complicate your case:

  • Your contact information
  • Contact information for the person handling the protest
  • Your TIN or SSN
  • The amount in question
  • The tax year in question
  • A statement of facts (an overview of your argument), which must be supported by evidence, laws, and factual information
  • Whether you agree with any detail or aspect of the proposed assessment
  • Your signature (or that of your attorney)

Finally, keep the following points in mind:

  1. Whichever method you choose, you must file the protest within 60 days of the date specified on your NPA.
  2. Filing a protest will not prevent interest from accruing, which can be accomplished only by making a payment to the FTB. However, before issuing a payment to the FTB, you should discuss your tax liabilities with a knowledgeable Los Angeles tax attorney.
  3. You have the option to have a representative handle your documentation for you. It is highly advisable to hire a tax professional for FTB audit representation. In addition to managing deadlines and paperwork, your tax lawyer will also ensure that your rights are not being violated, and will work to keep any financial penalties to a minimum.

Appeals will be directed to the California Office of Tax Appeals (OTA), which was created last year.

Processing FTB Docketed Protests

Returning to the matter of changes to the processing procedures for docketed protests (protests referred to the Legal Division), here are a few highlights that taxpayers should be aware of:

  • According to FTB Notice 2018-01, “The goal will be for staff to make initial contact with the taxpayer or the taxpayer’s representative within 120 days, or less, of the filing of the protest,” which means you should expect to hear from the FTB within four months of your submission.
  • The contact described above will contain “a request to establish an agreed hearing date if a hearing has been requested,” and may contain a request for additional documents or information.
  • Importantly, italics our emphasis, “Issues not raised by the taxpayer… in writing within the 60-day protest limitation period ordinarily will not be considered unless these issues can be considered and resolved within the above timeframe for processing docketed protests.”
  • After the protest hearing (where applicable), the “taxpayers or taxpayer representatives ordinarily

will be required to file an appeal with the Office of Tax Appeals (OTA).” No appeal may be filed until the FTB issues a Notice of Action.

For additional information, taxpayers may wish to:

California Tax Lawyers Providing FTB/OTA Audit Representation

If you intend to protest the outcome of an FTB audit, you should consult an experienced tax lawyer to ensure that you are taking the best course of action to protect yourself. At the Tax Law Offices of David W. Klasing, our tax professionals have been representing Californians in tax appeals before the IRS and FTB for over 20 years and will take your case all the way to litigation if necessary to put you in the best position possible. We have an in-depth understanding of OTA audits and FTB procedures, and will work tirelessly to protect your best interests from day one of your matter. For a reduced-rate tax consultation concerning an IRS audit or IRS appeals, an OTA audit or protest, or other type of tax audit or appeal, contact the Tax Law Offices of David W. Klasing online, or call (800) 681-1295 today.

Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices in San BernardinoSanta BarbaraPanorama City, and Oxnard! You can find information on all of our offices here.

 

Basics of IRS Appeals Representation

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