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Situated on the eastern shore of the San Francisco Bay, Oakland is a thriving hub of economic activity with over 440,000 residents. As the largest city in Alameda County, Oakland plays a critical role in the Bay Area’s economy, with diverse industries and vibrant port activities. However, this growth and economic dynamism come with the added responsibility of navigating some of the country’s strictest and most rigorously enforced tax codes. The Franchise Tax Board (FTB) and the IRS impose stringent regulations, conducting audits, investigating tax fraud, and assessing significant taxes, interest, and penalties for non-compliance.

The Franchise Tax Board (FTB) is California’s primary state tax authority, overseeing personal and business income tax returns. FTB audits focus on discrepancies in state tax filings and can be just as serious as federal tax audits. One critical point to remember is that even if the IRS has determined that you owe no additional federal taxes after an audit, the FTB may still find that you owe additional taxes under California’s tax laws, which differ in several ways from federal tax laws. If discrepancies are found, you may be forced to amend your federal tax returns to reflect the changes resulting from the California audit, potentially creating additional liabilities at the federal level.

The FTB’s role extends beyond tax collections and refunds; it also investigates cases where financial errors or suspicious activities have been detected, conducting audits of both businesses and individual taxpayers. The Franchise Tax Board frequently coordinates with the IRS and shares the results of its audits, increasing the possibility of federal-level tax audits or penalties. If you or your business has been selected for a California tax audit by the FTB or another state agency, you risk costly tax assessments, interest charges, civil penalties – or even referral for criminal tax prosecution.

If you find yourself confused by the various tax situations you’re facing, the last thing you want to do is complete tax forms without fully understanding what you are doing. And don’t just assume the FTB and federal tax forms require the same information, as they may be significantly different, which causes further confusion for some Bakersfield taxpayers. Our founder and managing attorney, David W. Klasing, possesses decades of experience as a former auditor in public accounting and has represented clients in countless federal (IRS) and California (FTB, CDTFA, EDD) audits for nearly 30 years, enabling our tax team to navigate the audit process with precision and skill. Our versatile, award-winning taxpayer advocates apply decades of combined experience to every case, sharpened by cutting-edge research into the latest regulatory and legislative developments. To arrange a reduced-rate consultation, contact the Tax Law Office of David W. Klasing online, or call our Oakland tax office at (510) 764-1020.

How to Appeal an FTB Audit in Oakland, CA

The FTB collaborates with the Office of Tax Appeals (OTA), an independent body established under the Taxpayer Transparency and Fairness Act of 2017. The OTA hears appeals related to sales and use taxes, corporate income taxes, and personal income taxes for California taxpayers. If you are audited by the FTB and disagree with the results, you have the right to protest or challenge the audit findings. However, the appeals process is incredibly complex and risks substantial financial penalties.

Step 1: Filing an Appeal of the FTB Audit

• You have 60 days from the FTB’s decision to file an appeal.
• When submitting your appeal, you must provide legal and factual reasoning for disputing the audit findings.
• In addition, you can request a date for an oral argument when you can present your case.
• It may be tempting to pay the tax assessment to stop the interest accrual while the appeal is ongoing, but this can often harden the resolve of the FTB, as they already have the money in question. It would be wise to consult with our dual-licensed Audit Appeals and Litigation Attorneys & CPAs to weigh the pros and cons of this decision.

Step 2: Presenting Your Case to the FTB

• An impartial representative from the FTB will review your initial appeal.
• During the appeals process, you will be allowed to present:
  • Legal documents
  • Oral arguments
  • Other forms of evidence to demonstrate that the audit findings were incorrect, either in terms of law or facts.
• After reviewing both sides, the FTB will either:
  • Confirm the original tax assessment,
  • Withdraw it entirely, or
  • Modify it to reflect new evidence or findings.

Step 3: Appealing to the Office of Tax Appeals (OTA)

• If the FTB’s internal appeals process does not result in a favorable outcome, your next option is to appeal to the Office of Tax Appeals (OTA).
• The OTA was created in response to decades of complaints from California residents and businesses regarding unfair hearings before the Board of Equalization (BOE). While the OTA was meant to provide a fairer process, its decisions have historically favored the California taxing authorities.
• It’s important to note that the administrative law judges hired by the OTA are often ex-employees of the same tax authorities they now adjudicate. However, appealing to the OTA remains viable, especially with skilled legal counsel.
• To appeal to the OTA:
  • You must file your intent to appeal within 30 days of the FTB’s final decision.
  • The OTA will review the evidence you and the FTB presented and issue a binding decision on the case.

Step 4: Requesting a Rehearing or Filing a Lawsuit

• If the OTA’s decision is unfavorable, you may request a rehearing if:
  • You have new evidence to present, or
  • You believe the OTA made an error in its original decision.
• If you still disagree with the OTA’s decision, your last option is to file a lawsuit in California Superior Court. This is the most formal and final step in the appeals process.

If FTB has contacted you and you know you made false statements or used inaccurate reporting techniques when filing your taxes, do not face the audit alone. Our experienced dual-licensed Oakland FTB Audit Appeals Attorneys and CPAs will act as a barrier and stop the examining agent from inferring criminal admissions/confessions from your actions and words. At the Tax Law Offices of David W. Klasing, we are nationally recognized and award-winning tax attorneys, bringing nearly three decades of experience to every case we handle. We are well-versed in FTB and OTA appeal and protest procedures under the updated California tax laws. We can protect your best interests while working efficiently to resolve the controversy. We have four objectives in each case: holding your tax liabilities to a minimum, providing the information you need to make informed and strategic decisions, protecting your liberty by minimizing the risk of prosecution for California tax crimes, and helping you comply with the law.

If push comes to shove, our Oakland Tax Litigation Attorneys will take your case to litigation if necessary to put you in the best position possible. Our skilled tax litigation & appeals lawyers & supporting CPAs have extensive knowledge and experience dealing with various federal and California state tax audit issues. This incorporates representing clients in disputes involving IRS audits, disputes with the CDTFA (BOE) and FTB, claims for refund, tax collection defense, innocent spouse relief, criminal tax defense, and more. Whether it’s handling cases of criminal tax exposure, guiding you through a civil tax audit, eggshell audit, reverse eggshell audit, or defending against a criminal tax investigation, the expertise of our seasoned dual-licensed Oakland Tax Attorneys and CPAs is invaluable. As an experienced litigator, David W. Klasing Esq. M.S.-Tax CPA can represent you in the Federal or California Tax Court.

If you have any questions about protesting an FTB decision, contact our dual-licensed FTB Audit Attorneys and CPAs online, or call the Tax Law Offices of David W. Klasing at (510) 764-1020 for a reduced-rate initial consultation or schedule online today.

Can Cheating on My Taxes Lead to a Criminal Investigation by the FTB or California Bureau of Investigation?

The potential for criminal exposure is significant, as is evident in audits conducted by the FTB. If the FTB detects deliberate underreporting of income or other fraudulent activities during an audit, the case may escalate into a full-scale criminal tax investigation. This can be a devastating experience for any taxpayer, with consequences far beyond simple fines or interest. Criminal tax charges stemming from tax audits can lead to severe legal penalties, including imprisonment, substantial fines, and lasting damage to both reputation and finances.

Criminal Exposure in FTB Audits

The FTB aggressively investigates and prosecutes cases of California income tax fraud. This includes situations where taxpayers intentionally underreport their income or fail to report income altogether. For example, suppose a taxpayer misplaced essential tax documents and could not report substantial income from a brokerage account. In that case, the FTB may interpret this as a deliberate attempt to hide income. Other red flags, such as destroyed records or unfiled returns, can trigger a deeper investigation.

Some common examples of California FTB Criminally Prosecutable Income Tax Fraud include:

• Claiming residency in another state while living in California.
• Falsifying business records to reduce taxable income.
• Making false claims for tax refunds or intentionally underreporting taxable income.
• Closing and reopening a business to evade tax obligations.
• Participating in the California underground economy, such as running a cash-based business while failing to report income.

If the FTB suspects that any of these activities have occurred, it can initiate a criminal tax investigation, often in coordination with other state and federal agencies like the IRS or California Department of Tax and Fee Administration (CDTFA). The FTB may also work with the California Bureau of Investigation (CBI), which provides expert investigative services in major criminal cases across the state. The CBI assists local, state, tribal, and federal agencies, including the FTB, in uncovering serious tax fraud schemes.

Eggshell and Reverse Eggshell Audits: What You Need to Know

An eggshell audit occurs when a civil audit is conducted, but the taxpayer knows that the findings may lead to criminal tax charges if any signs of fraud are uncovered. During an eggshell audit, the FTB or IRS may look for certain “badges of fraud,” such as missing records or significantly underreported income, which could indicate intentional wrongdoing.

In contrast, a reverse eggshell audit is initiated when the FTB or IRS already has reason to believe that tax fraud has occurred and uses a civil audit to collect evidence that may later be used in a criminal prosecution. The taxpayer, however, may not be aware that the investigation is primarily criminal.

Both types of audits pose a substantial risk to taxpayers. If the FTB or IRS uncovers evidence of fraud, they can collaborate with the FTB’s Criminal Investigation Bureau, the IRS’s Criminal Investigation Division (CID), and the California Bureau of Investigation (CBI) to initiate a full-fledged criminal tax investigation. This collaboration between state and federal authorities makes it critical for taxpayers to understand the severe risks of FTB audits and seek experienced legal counsel if they suspect their case may escalate.

Examples of Criminal Cases Stemming from FTB Audits

Many criminal tax cases arise from FTB audits where businesses or individuals in Oakland fail to report their income correctly. One common scenario is where taxpayers in high-risk industries, such as the cash-based economy, are found to have falsified business records or destroyed documents to evade taxes. The FTB, in coordination with the California Bureau of Investigation, aggressively pursues such cases, often leading to criminal prosecutions for tax fraud.

Additionally, international tax evasion schemes, where taxpayers use offshore accounts or remote tax havens to hide income, are often detected through collaborative efforts between the FTB and the IRS. The FTB’s criminal investigation capabilities are extensive; even minor discrepancies can lead to severe consequences.

When facing high-risk tax audits from agencies like the IRS and FTB, certain red flags, such as destroyed records, underreported income, badges of fraud, or unfiled returns, can intensify the examination and may lead to high-risk eggshell and reverse eggshell tax audits. As such, residents and businesses must be aware of potential criminal tax violations and the signs indicating that they might be under a more rigorous investigation by the IRS’s Criminal Investigation Division (CID). This is especially so when the taxpayer has a history of blatantly cheating on their tax returns and is now under audit and thus fears criminal tax prosecution.

It is never prudent to ignore an FTB notice, even if you disagree with its findings or are unsure precisely what the notice is about. Contrary to being forgotten, interest on unpaid tax debts will continue accruing until your debt is satisfied. If you or your small business has been selected for a tax audit in Oakland and you are concerned about a criminal tax investigation resulting from or occurring alongside the audit, engaging our Oakland Criminal Tax Defense Attorneys + CPAs services at the onset of a high-risk audit / criminal tax investigation will maximize the possibility of a favorable outcome without escalating to criminal tax charges. We have never had a federal or California audit client criminally prosecuted for tax crimes.

For a reduced-rate tax consultation concerning an FTB audit, an FTB protest letter, CDTFA or OTA procedures, or tax relief options, call our Oakland tax office at (510) 764-1020 or contact the Tax Law Office of David W. Klasing online here for a reduced-rate initial consultation.  Please note that our Oakland office is by appointment only.

Our Oakland office is conveniently located at:

505 14th St.

Oakland, CA 94612

(510) 764-1020