California FTB, CDTFA or EDD Tax Fraud Defense Attorney & CPA
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.
Do I Need a Tax Fraud Attorney or CPA?
Anytime you have received notice from the IRS or any state-level tax agency that you are being audited or are under some sort of criminal tax investigation related to the tax returns you filed (or did not file), you should reach out to a skilled Tax Attorney and CPA like those at the Tax Law Offices of David W. Klasing right away. The sooner you get into contact with us, the better the chance we have of helping you handle the situation with as few negative repercussions as possible. In fact, the best time to hire our experienced Tax Attorneys and CPAs is before you file your taxes, so that we can do a full assessment of your books and records and make sure your returns are accurate and complete and ensure you avoid facing trouble down the line.
Why You Should Hire a California dual licensed Tax Fraud Attorney & CPA
When deciding who to hire to help you with your tax-related issues, you may be considering between a Tax Attorney and Certified Public Accountant, or CPA. A CPA is an accounting professional with an extensive educational background, which includes training in auditing, taxation, bookkeeping, and business planning and strategy. They also must go through a rigorous licensing process, and for this reason, they are usually considered the “cream of the crop” among accountants and financial planners. With their background in accounting & bookkeeping as well as financial planning, they can assist you with year-round record-keeping as well as with tax preparation services. They can also look over your financial records and past tax returns to identify problem areas that need improvement before the IRS comes calling.
A Tax Attorney, on the other hand, is a law school graduate who has passed the rigorous bar exam and who usually has earned an LLM or master’s degree in the complex field of tax law. While they can assist you with recordkeeping and tax preparation like a CPA, a Tax Lawyer’s area of focus will ordinarily involve long-term business and tax planning and short-term tax dispute resolution. While a CPA can technically represent you during an audit, for example, they will not have the same extensive legal training and knowledge of negotiation tactics that give Tax Attorneys the ability to go toe-to-toe with IRS agents, auditors, appeals officer’s and especially the Attorneys out of IRS Chief Counsel’s Office.
One significant benefit of hiring a licensed Tax Attorney to assist you regarding any issues that might arise with an IRS or state taxing authority, especially where they did not prepare or give tax advice on the return(s) at issue, is that virtually everything you say or show to your tax lawyer (if not utilized in the preparation of the returns at issue) will be protected under the attorney-client privilege that prevents lawyers from sharing sensitive client information with others, even with a court of law. In some cases, your Tax Attorney can opt to bring in a consulting accountant who can receive derivative attorney-client privilege through a Kovel letter, and who can help them with more accounting-specific issues that arise. Accountant-client privilege, meanwhile, is much less robust, and it is fairly common for an accountant to be legally forced to flip on a client and testify against them, something a Lawyer could almost never be forced to do.
While, if forced to choose between the two, it is usually best to hire a Tax Attorney, especially if you know you are facing potentially serious criminal tax repercussions, the good news is that you do not have to choose—many of our skilled tax professionals at the Law Offices of David. W. Klasing are both licensed Tax Attorneys and Certified Public Accountants, bringing with us all the knowledge and experience that comes from operating in both worlds. Whether you are looking for someone to review your books and records and help you submit a proper domestic or international tax return or to deal with the consequences of pattern of past fraudulent or misleading tax returns that have already been filed, we are here to protect you and give you the best possible advice to bring your matter to a positive resolution.
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.
California Sales Tax Questions and Answers
- Common issues encountered during sales tax audit
- What is a sales tax audit?
- Disagreeing with business audit conclusions
- Timeline to file Petition for Redetermination?
- What should Petition for Redetermination contain?
- Is the appeals conference formal or informal?
- Appeals Division’s Decision and Recommendation
- Are a mark-up percentage and a profit margin the same?
- Problems with the mark up audit
- Can State Board of Equalization ignore my business records
- What is a sales tax deficiency determination?
- Business being audited for sales tax. Should I be worried?
- Audit determined fraud to avoid sales and use tax
- Definition of “sale” for California Sales Tax
- What do California sellers need to know about sales tax?
- How do I apply for a sellers permit?
- What are my obligations as a permit holder?
- What is sales tax?
- What is tangible personal property?
- What is a sale?
- What are total gross receipts?
- What is use tax?
- Who is responsible for paying the use tax?
- Who is a retailer engaged in business in California?
- Who is a qualified purchaser?
- Do I need a Certificate of Registration Use tax?
- Do I need a Use Tax Direct Payment Permit?
- What types of sales are exempt from sales tax?
- How are Internet Transactions Taxed?
- How is California sales or use tax determined?
- What is the statewide sales and use tax rate?
- Are there other local and district sales and use taxes?
- Total sales and use tax rate calculation
- How to protect against successor liability in California
- Recourse when issued California sales tax liability notice
- CA Sales Tax liability extend to purchasers/successors?
- Waiting Until Audited to Take Action on Tax Matters
- Sales tax records needed in California
- What are California’s sales and use taxes?
- Why does the State of California audit businesses to ensure compliance with sales and use taxes? How does the State determine whether to audit my business?
- The BOE reviews the purchase invoices of my business
Questions about delinquent payroll taxes and trust fund recovery penalty
- What happens if an employer continues to incur new payroll tax liabilities?
- California Employment Taxes Basics
- How Does the IRS Develop an Employment Tax Fraud Case from the First Indication of Fraud to a Criminal Indictment?
- Can more than one person be considered responsible by IRS
- How unpaid employment tax payments are allocated
- When a corporate officer is considered a responsible party
- Examples of trust fund recovery penalty determinations
- Failing to pay employment taxes after notice is given
- How to determine responsible person for trust fund recovery
- Assessing trust fund recovery penalty and option to appeal
- What is the trust fund recovery penalty?
- What are the penalties for failure to pay employment taxes
- When am I considered liable for company’s employment taxes
Questions and Answers for Criminal Tax Representation
- When tax defense counsel parallels tax crime investigation
- Guilty of tax obstruction by backdating documents?
- To be found guilty of tax obstruction must a person actually be successful in impeding the IRS’s functions?
- Help! The Document I Gave the IRS Had False Information
- Tax crime aiding or assisting false return IRC §7206(2)
- What is the crime known as tax obstruction § 7212?
- What is the difference between tax perjury and tax evasion?
- What is the tax crime commonly known as tax perjury?
- What is a Klein Conspiracy?
- Increased possibility of civil action in IRS investigation
- Am I Guilty of Tax Evasion if the Law is Vague?
- What happens if the IRS thinks I committed tax crimes?
- What are ways to defend against a tax evasion charge?
- Difference between criminal tax evasion and civil tax fraud
- What accounting method does the IRS use for tax fraud
- Can I Change Accounting Method to the Accrual Method
- What is the willfulness requirement for tax evasion?
- I didn’t know I committed tax fraud. Can I get off?
- Concealed assets from IRS. Can I avoid tax evasion charges
- How government proves I willfully engaged in tax evasion
- What is the venue or court where a tax crime case is heard?
- Must the IRS prove tax crimes beyond a reasonable doubt?
- Is it a crime to make false statements to the IRS?
- Will the IRS overlook my tax evasion if it’s minor?
- Failed to tell IRS about my nominee account
- Audit risk with cash based business transactions
- How to defend a client charged with tax evasion
- Is it tax evasion if I didn’t file income tax return?
- Government says I attempted to evade my taxes. Now what?
- I forgot to pay my taxes or estimated tax. Is this a crime?
- Government proof I “willfully” failed to pay taxes
- 5 Ways to Respond to Tax Evasion Charges
- Being audited after using a tax professional
- Rules for what an IRS agent can do while investigating me
- How tax preparers, attorneys and accountants are punished
- How the IRS selects tax crime lead for investigation
- How does the IRS prosecute suspected tax crimes?
- Does IRS reward informant leads for suspected tax crimes?
- How the government proves deficiency in a tax evasion case
- Do prior tax crimes factor into new IRS tax convictions?
- Requesting conference before investigative report is done
- Requesting conference after IRS Special Agent Report
- What are my rights during an IRS criminal investigation?
- Avoid prosecution for tax crime with voluntary disclosure?
- Defense tactics that make it hard for to prove willfulness
- How a tax attorney can stop your criminal tax case?
- What can you generally tell me about tax crimes?
- Continuing filing requirement with investigation pending
- Federal criminal code crimes that apply to tax issues
- Penalty for making, subscribing, and filing a false return
- CID special agent’s report for criminal prosecution
- What is the discovery process in a criminal tax case?
- What the IRS includes in indictment for tax case
- What is the hardest element of a tax crime to prove?
- IRS methods of gathering evidence to prove tax crime
- What does a grand jury do in IRS tax crime prosecution?
- Failure to keep records or supply information
- Failure to make a return, supply information, or pay tax
- What is attempting to evade payment of taxes?
- What is income tax evasion and how is it punished?
- What is attempted income tax evasion?
- What is the crime of failure to pay tax? What is punishment
- Crime of making or subscribing false return or document
- Criminal Investigation Division investigation tactics
- Tax crimes related to employment tax forms and trust funds
- Tactics to defend or mitigate IRS criminal tax charges
- How the IRS generates leads about suspected tax crimes
- What is the crime ”evasion of assessment” of tax?
- Specific examples of “attempting” to evade tax assessment
- What is the so-called Spies evasion doctrine?
- Does overstating deductions constitute tax evasion?
- Is it tax evasion if my W-4 contains false statements?
- IRC §7201 attempt to evade vs. common-law crime of attempt
- What are the penalties for Spies tax evasion?
- How government proves a taxpayer attempted tax fraud
- What is a tax that was “due and owing.”
- What is evasion of assessment for tax liability?
- Is evasion of assessment different from evasion of payment
- Does the IRS have a dollar threshold for tax fraud?
- What is the IRS burden of proof for tax fraud convictions?
- Are Tax Laws Constitutional?
- What is the source of law that defines tax evasion?
- Does section 7201 create two distinct criminal offenses?
- Does tax evasion definition include partnership LLC
- What if I helped someone else evade taxes?
- Is it illegal to overstate deductions on my tax return?
- Is it illegal to conceal bank accounts from the IRS?
- Do later losses justify prior deductions?
- Common reasons the IRS and DOJ start investigations
- What is the Mens Rea component of tax crimes?
- What is a proffer agreement and what are the risks?
- Why to have an attorney to review a proffer agreement
- Why enter into a proffer agreement?
- Limited use immunity from proffer agreements
- Difference between civil and criminal fraud allegations