Dually Licensed California Tax Attorney & CPA for Aerospace Companies
California is a traditional stronghold for the U.S. aerospace industry, particularly Southern California, where economic giants like Northrop Grumman and Lockheed were once headquartered. California’s aerospace industry continues to soar in the new millennium, supporting private industry, government projects, and research programs around the world. However, while the industry holds immense financial and technological opportunity, it is also a minefield of tax regulations, posing unseen dangers to corporations and individuals who fail to consider their strategies carefully. At “best,” an oversight in your tax strategy could cost you valuable business opportunities – and at worst, could trigger a tax audit or even IRS criminal investigation.
The aerospace industry is one of the most regulated in the world, so it should come as no surprise to you that it is frequently a target of tax audits by the IRS and California taxing authorities. In order to ensure that you or your enterprise does not fall on the wrong side of the law, it is crucial that you are aware of all of the intricate issues involved in audits of the aerospace industry.
We have often been confronted with a situation where a client has a tax problem that could trigger a criminal tax investigation and possible criminal prosecution. These circumstances are varied. In some fortunate instances, we learn of the issue before the IRS has commenced an audit or collection activity. In many such instances, we have, in the past, been able to assist our clients in avoiding a criminal tax investigation and prosecution, leaving them with reasonable peace of mind that nothing more than additional tax, interest and a civil penalty is likely.
If you failed to file tax returns for one or more years or stated something in your returns without a valid basis, we advise you to seek legal guidance from a dually California licensed Tax Attorney and CPA immediately. At the Tax Law Office of David W. Klasing, we are California tax attorneys and CPAs with over 20 years of combined experience providing award-winning service to aerospace companies that are based or do business in California. The tax services that we offer include IRS audit defence, California state audit defence, criminal tax defence, and audit appeals representation. We can also assist you or your business with tax compliance, tax planning and, personal or business tax preparation, and bookkeeping and accounting services tailored to the aerospace industry. In addition to being a dually licensed California Tax Attorney and CPA, David Klasing is a private pilot with an instrument rating with deep connections in the California General Aviation Community.
At the Tax Law Office of David W. Klasing, we are California tax attorneys and CPAs with over 20 years of combined experience providing award-winning service to aerospace companies that are based or do business in California. Tax services we offer include IRS audit defense, California state audit defense, criminal tax defense, and audit appeals representation. We can also assist you or your business with tax compliance questions, personal or business tax preparation, and bookkeeping and accounting services tailored to the aerospace industry. David Klasing, in addition to being, a dually licensed California Tax Attorney and CPA, is a private pilot with an instrument rating with deep connections in the California General Aviation Community.
California + IRS Tax Audit Attorneys for Aerospace Engineering Firms
IRS vs. California Tax Audits (FTB, EDD, CDTFA)
The Tax Law Office of David W. Klasing represents aerospace engineers, aerospace firms, and aerospace investors in all types of tax audits, including the following:
- Aircraft tax audits
- California tax audits
- Civil tax audits
- Criminal tax audits
- Employment tax audits
- Foreign account audits
- Income tax audits
- IRS tax audits
- Worker classification audits
There are several agencies that may select you or your business for an audit if there appear to be issues with your state tax returns or the supporting schedules and attachments. These agencies are the Franchise Tax Board (FTB), which is authorized to conduct California personal and corporate income tax audits; the California Department of Tax and Fee Administration (CDTFA), which audits aerospace businesses with sales and use tax or special tax compliance issues (such as jet fuel taxes); and finally, the Employment Development Department (EDD), which, as its name suggests, is responsible for California employment and payroll tax audits.
Potential IRS Audit Issues
The IRS’s focus on the aerospace industry can be gauged by the fact that the IRS had included the aerospace industry in its Industry Specialization Program. The IRS National Office’s Industry Specialization Program was designed to increase the effectiveness of IRS examinations involving specialized industries by improving the identification and development of issues and by ensuring the consistent treatment of issues nationwide. For the aerospace industry, there was a nationwide industry coordinator and a specialist within both the examination and appeals functions of the IRS. Therefore, you can rest assured that the IRS and California taxing authorities know all the tricks of the trade, and it would be a mistake for you to assume that you can hoodwink them in any way.
If you took a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, there are several agencies that may select you or your business for an audit. These agencies are the Franchise Tax Board (FTB), which is authorized to conduct California personal and corporate, partnership, and LLC income tax audits; the California Department of Tax and Fee Administration (CDTFA), which audits aerospace businesses with sales and use tax or special tax compliance issues (such as jet fuel taxes); and finally, the Employment Development Department (EDD), which, as its name suggests, is responsible for California employment and payroll tax audits.
If you have undertaken any of the actions listed below, you run the risk of alerting the examining agent that something is not right and triggering a federal of California criminal tax investigation:
keeping a double set of books;
making false entries or alterations;
making false invoices or documents;
destruction of books or records;
concealment of assets or covering up sources of income;
handling of one’s affairs to avoid making the records usual in transactions of the kind; and
any conduct, the likely effect of which would be to mislead or to conceal.
In some unfortunate instances, such as an ongoing audit, we may learn of a problem at a time when it is no longer possible to take corrective action. Our goal is to contain the situation in the best possible way in these cases. For the client, the specter of obstruction of justice looms in the background. Uncounseled taxpayers may be tempted through chicanery to divert the auditor’s attention or deceive the auditor. Casually or inadvertently misdirecting an auditor in this manner could result in the most dire consequences.
Civil vs. Criminal Tax Audits
Some audits conclude uneventfully, with the auditor resolving the questions, or only recommending minor tax adjustments. However, some audits reveal serious errors that could be linked to tax fraud, such as failures to report bank accounts, failures to report sources of income, unsubstantiated deductions or credits or multiple years of unfiled tax returns. After the discovery of fraud at an aerospace company, an audit may be prematurely terminated and transferred to the criminal investigation unit of a federal or state taxing authority and criminally investigated – and, where appropriate, referred to the Department of Justice or to a District Attorney. In other instances, a criminal investigation and civil tax audit occur concurrently, which is known as a “reverse eggshell audit.”
The “Eggshell” Civil Tax Audit
You should be aware that eggshell audits carry within them the potential for a criminal referral. An eggshell audit arises if you have filed one or more false returns in previous years and are subsequently selected for an audit. Although the exam is a civil one, it can potentially lead to criminal tax charges. We pride ourselves on our ability to know what needs to be done when a taxpayer is going through an eggshell audit.
During the audit, we will monitor the audit proceeding and advise you on how to properly interact with the examining agent. Extreme care must be taken when you are interacting with the agent. We ensure that you do not make incomplete statements or misrepresentations of fact to the agent, even if you believe them to be true.
Please be aware that representation in the eggshell audit is unlike the routine civil examination where your representative might function freely, engaging the agent to offer facts, legal argument, and precedent. In the eggshell audit, we will implement a less adversarial strategy, seeking to diminish the chance of a referral for a criminal tax investigation. The principal techniques we employ are to keep you away from the agent, avoid discussion of your knowledge and intent, and control the extent of cooperation without arousing the agent’s suspicions. As you can imagine, little of that is easy because it is difficult to properly and fully explain a refusal to provide some documents or respond to some questions without invoking the Fifth Amendment privilege against self-incrimination. However, that is where our decades of experience comes in. Having represented thousands of clients, we have nailed down the strategy and are able to walk this fine line without any issues.
The Mistake of Using Your Accountant/Original Preparer
If you know you cheated on your tax returns, the biggest mistake you can make is to consult the original preparer regarding the audit or criminal tax investigation. Your original preparer can be your worst enemy in the situation where you cheated on your original return and now find yourself under audit. The CPA, EA, or CTEC certified preparer often makes the bulk of their income from tax accounting and preparation, and thus they have a strong motivation to protect their reputation with the taxing authorities at the expense of your reputation. They will often be government witness number one to establish your wilful tax evasion where you provided them incomplete or, worse yet, a cooked set of books that they relied on the prepare your return.
Please note that there is no evidentiary privilege for communications between an accountant and his or her client. However, we know exactly how to circumvent this problem. An accountant retained by us is not expected to testify. Such an accountant is commonly referred to as a Kovel accountant, referring to the case that established an early precedent that an accountant working adjunct to a lawyer’s representation can operate within the attorney-client privilege and/or work-product protection.
Your historic accountant or return preparer should never be retained as the Kovel accountant because of potential conflict with the accountant’s role as a fact witness. The way we operate, it is almost impossible to distinguish between knowledge gained as a return preparer from that learned as the Kovel accountant.
At the Tax Law Office of David W. Klasing, we focus our strategy on limiting criminal tax exposure before a taxpayer is investigated or charged – for instance, by making foreign, domestic or California voluntary disclosures, filing amended returns, representing the taxpayer in tax audit proceedings, and taking other corrective actions to help the taxpayer reenter the system with minimal risk and damage. However, our tax evasion lawyers are equipped with decades of experience, and are ready to fight hard against preindictment misdemeanor or felony tax charges if the taxpayer is investigated during or following an audit.
Sources of Criminal Cases
- Informants. Tipsters and other third parties, such as ex-wives or disgruntled employees provide a wealth of information to the Criminal Investigation Division. Many of these tipsters are motivated by revenge or a desire to seek the reward of up to ten percent of the tax and penalty ultimately recovered by the Internal Revenue Service.
- Undercover Activities. “Sting” cases such as those involving insurance, Medicaid fraud, or other types of fraud routinely involve allegations of tax improprieties.
- Civil Audits. Civil audits of related or associated taxpayers often lead to criminal investigations.
- Independent Criminal Investigations. Special agents spend hours perusing local newspapers, court records, and legal filings for “notorious” cases with potential tax implications.
- Agency Referrals. Police agencies, other federal agencies and grand juries may also provide information that leads to a criminal tax investigation.
- Monitoring and Matching Programs. Form 8300 transaction reporting documents (or, more likely, the failure to file the form) may lead to criminal charges.
What if I Know I Cheated on My Taxes and the IRS or California CDTFA FTB or EDD Wants to Speak with Me?
In our experience, the first symptom alerting the examiner to the possibility of fraud is frequently provided by the taxpayer himself. Your conduct during the examination and method of doing business may be indicative of the filing of improper returns. If you undertake any of the actions mentioned below, commonly called badges of fraud in the criminal tax defence industry, you run the risk of alerting the agent that something is amiss:
(a) repeated procrastination on your part in making and keeping appointments for the examination;
(b) uncooperative attitude displayed by not complying with requests for records and not furnishing adequate explanations for discrepancies of questionable items;
(c) failing to keep proper books and records, especially if previously advised to do so;
(e) destroying books and records without a plausible explanation;
(f) making false, misleading, and inconsistent statements;
(h) altering records;
(i) using currency instead of bank accounts;
(j) engaging in illegal activities; and
(k) failing to deposit all receipts.
Generally speaking, when a taxpayer is being examined civilly for taxes, and there is no criminal tax violation exposure, the general rule is to be cooperative and give the examining agent most, if not all, of what he wants. This is due, in part, to the fact that the taxpayer has the burden of proof.
However, if we are aware that you have willfully violated the law, we may shift the tone of cooperation 180 degrees. This is particularly true when we get the sense that the agent is already on the scent of wrongdoing. As stated above, this situation is referred to as an eggshell audit since the practitioner who knows of his client’s wrongdoing proceeds through the audit very carefully, as if walking on eggshells. How to play the game of cooperation/non-cooperation requires exceptional skill and knowledge, and we vary it in each case. In so doing, we balance protecting you from prosecution “by your own hand” with the fact that your non-cooperation could alert the agent to something being amiss.
You must understand that your cooperation or lack of cooperation will not affect whether your case is prosecuted or not. Prosecution depends solely on the evidence against you. A tax cheater who cooperates simply makes an agent’s job easier and shortens the length of time before he goes to prison. To cooperate or not must be considered on a case-by-case basis by an expert in the field. Moreover, you should not meet with CID agents without your attorney present. Special agents will be seeking admissions regarding elements of the case and potential basis.
Why do You Need Us?
While representing you, our objectives in dealing with the examining agent are:
(1) to attempt to limit the scope of the inquiry;
(2) to limit the information provided to avoid both waiver of the Fifth Amendment and incrimination;
(3) to avoid tying you to an explanation you cannot support;
(4) to prevent the presentation of false or misleading information that could lead to the allegation that you are engaged in a scheme to cover up the fraud; and
(5) to avoid claiming the Fifth Amendment or otherwise alerting the revenue agent to the fraudulent aspects of the returns.
There is a world of difference between an ordinary audit and a fraud investigation. The objective in most civil audits is to present as much evidence as possible to convince the agent or conferee that an adjustment is not appropriate. However, our goal in a fraud investigation is to withhold all possible incriminating information to the extent possible in an effort to reduce the scope of the criminal tax investigation.
Please be aware that you should never attempt to bluff or explain an item or transaction. Anything you say can and will be used against you. There are no informal conversations with agents. If the explanation is false, it is evidence of fraud and when dealing with a federal agent, a felony in itself.
We truly understand how the IRS and California Tax authorities function and run their civil audits and criminal tax investigations. We are well conversant with the background information that IRS, CDTFA, FTB, and EDD have on the aerospace industry and how it familiarizes and trains its examiners with the issues they need to understand when civilly auditing or criminally investigating/prosecuting you.
IRS + California Audit Appeals Representation for Aerospace Firms
How Does My Business Appeal the Results of a Tax Audit?
Even if no criminal charges are filed, an audit can still result in three negative outcomes for taxpayers: (1) a proposed increase in the amount of tax you owe; (2) interest that has accumulated on the proposed unpaid taxes; and (3) civil penalties, such as failure-to-file or failure-to-pay penalties, or civil fraud penalty imposed for various tax violations. If any of these outcomes result from an auditor’s error as to the fact or law at issue, the taxpayer can dispute the results by filing an appeal, either with the IRS Independent Office of Appeals, or the California Office of Tax Appeals (OTA). To prevail, the taxpayer must clearly describe his or her arguments in a written notice, supporting it with factual, objective evidence such why the taxing authority have gotten the facts or the law wrong and what are the correct facts, tax statutes or prior court rulings that control.
Can My Company Sue the IRS?
Potentially, under limited circumstances. Tax issues that can be successfully litigated include Tax Court deficiency actions, in which the taxpayer disputes a tax assessment (after receiving a deficiency notice, or “90-day letter”); and refund actions, in which the taxpayer seeks a refund for payments he or she has already made in full.
California Tax Lawyers + CPAs for Aerospace Companies
Even the most innovative aerospace companies can be hamstrung by poorly executed tax strategies or suboptimal accounting practices. Let an experienced dually licensed tax attorney and CPA focus on your company’s tax planning or audit defense strategy, so that you can devote your energy to pioneering new growth. Contact us online today to arrange a reduced rate consultation or call the Tax Law Office of David W. Klasing at (800) 681-1295 for immediate assistance.
In addition to our staffed main offices 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.
Note: If you have concerns about the privacy of our initial or subsequent communication and are unable to easily travel to our Irvine / Orange County Main Office, consider scheduling a GoToMeeting to safely and securely establish an initial or maintain an existing attorney client relationship. 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. We are generally happy to travel to any of our appointment only satellite offices for a subsequent meeting in appropriate circumstances once a relationship is established via a signed engagement letter and the payment of an initial retainer or where enough retainer is available where a current client to cover the reasonable travel time and time required for the meeting.
Will it cost me more to hire the Tax Law Offices of David W. Klasing, who’s main office and the vast majority of the firm’s staff is located in Irvine California, but an appointment only Satellite office is close to my location, as opposed to a local company? Absolutely not! See our policies that address this issue here
More Commonly Asked Tax Audit Questions
- How should Tax Audits be Handled by Criminal Tax Counsel?
- How to survive audit when I cheated on return being audited
- What is an eggshell audit?
- What is a reverse egg shell audit?
- Why is a reverse egg shell audit dangerous for a taxpayer?
- Warning signs of a criminal referral from an IRS audit
- Effective tax defense counsels goals in an egg shell audit?
- How are the 4 goals and outcomes 1 and 2 best obtained?
- What are the possible outcomes of an egg shell audit?
- Is it my right to know why I was selected for examination?
- What can I do to prepare for an audit?
- What is an IRS civil examination?
- How IRS decides which tax returns are audited
- What are my appeal options if I disagree with IRS?
- What are my basic taxpayer rights if the IRS audits me?
- Options if I am unable to pay at the conclusion of audit
- What a 30 or 90-Day Letter from the IRS means
- What is involved with appealing disagreements?
- Rights to disagree with IRStaxauditor’sss findings
- Can I stop the IRS from repeatedly auditing me?
- Can I have the examination transferred to another area?
- Can I record my IRS interview and is it a good idea?
- How many years of returns are at risk during an audit?
- Common reasons for the IRS to conduct a tax audit
- How to avoid negative consequences from an IRS interview
- Have to agree to interview by taxing authority directly?
- Are all audits the same?
- What should I do if the IRS is investigating me?
- What ifIdon’ttt respond to a taxing authority audit notice
- Your rights during an IRS tax audit
- Risks of attending an IRS audit without a tax lawyer
- Most common audit technique used by taxing authorities
- Don’t go into an IRS audit without representation
- Why hire an attorney to represent me in an audit?
- Why hire David W. Klasing to represent me in an audit
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 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 allegation
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