Awards & Recognition

The California Department of Tax and Fee Administration (CDTFA) (formerly BOE) is responsible for administering and collecting state sales taxes in Oakland, CA. Businesses operating in Oakland must charge sales tax on taxable goods and services, collect it from customers, and remit it to the state. A CDTFA sales tax audit is conducted to ensure businesses comply with their tax obligations, accurately report taxable sales, and remit the correct amounts to the state.

Sales tax audits typically focus on businesses dealing in tangible personal property or providing services subject to sales tax. The CDTFA may initiate audits at random or when discrepancies or anomalies are detected in a business’s tax filings. With its dynamic business environment and range of industries, Oakland faces particular scrutiny regarding compliance with sales tax regulations.

Common Triggers for a CDTFA Audit

Several factors can trigger a CDTFA sales tax audit. Some of the most common triggers include:

• Inconsistencies in sales tax filings, such as discrepancies between reported sales and actual sales recorded in business records.
• Failure to file sales tax returns or filing late returns.
• High-risk industries such as restaurants, bars, and retail businesses, particularly those dealing heavily in cash, which may raise suspicions of cash skimming or underreporting of sales.
• Third-party reports suggesting improper tax practices, such as vendors or wholesalers providing inconsistent information compared to the business’s sales tax filings.
• Sales Tax Returns that do not reconcile to sales reported for federal income tax purposes

In Oakland, businesses handling large cash transactions or operating within hospitality, retail, or entertainment industries may be subject to additional scrutiny due to the inherent risks of underreporting sales.

What to Expect During a CDTFA Sales Tax Audit

CDTFA audits are known for being comprehensive, often covering a look-back period of at least three years. Businesses under audit should be prepared to provide extensive documentation, which may include:

• Sales records and receipts for every transaction during the audit period.
• Tax returns filed during the audit period, along with supporting documents such as invoices and purchase orders.
• Bank records and financial statements to verify the accuracy of reported sales.

In some cases, auditors may request third-party records from suppliers or wholesalers to cross-check sales data. Businesses in Oakland that operate primarily on a cash basis may face additional scrutiny, as auditors might send undercover agents to observe business operations and ensure accurate sales tax collection.

For example, auditors may use industry-specific methods to assess compliance. In bars and restaurants in Oakland, auditors may conduct an undercover pour test to monitor the amount of liquor served in each drink to ensure the correct sales tax is paid on total sales. They may also look for signs of cash skimming or zapper programs to hide cash sales.

If your Oakland business is selected for a sales tax audit, it’s crucial to stay calm and immediately seek the assistance of our dual-licensed Oakland Sales Tax Attorneys & CPAs. At the Tax Law Office of David W. Klasing, our innovative, forward-thinking team of tax attorneys and accountants provides sales and use tax audit and appeals representation, criminal tax defense representation, and business bookkeeping and tax planning and compliance services for all kinds of businesses statewide. Whether you are facing a sales or use tax audit, are concerned about criminal tax exposure, or have questions about best practices for bookkeeping and accounting, tax planning, or tax compliance, rely on our dual-licensed California Tax Lawyers and CPAs for clear and trustworthy guidance.

What If I Know I Cheat on My Taxes And The California CDTFA Wants To Speak With Me?

If you know you have cheated on your taxes, and the California Department of Tax and Fee Administration (CDTFA) or the IRS wants to speak with you, the situation can rapidly escalate. During a sales tax audit, the CDTFA may look for signs or badges of fraud that would allow them to initiate a criminal tax investigation. A poorly handled audit can result in significant tax liabilities, fines, and penalties, especially if the CDTFA uncovers evidence of underreporting or unreported sales. When facing high-risk tax audits from agencies like the IRS and CDTFA, 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 federal tax returns and is now under audit and thus fears criminal tax prosecution. Even international tax evasion schemes that utilize remote tax havens are easily detected by the IRS, which works with tax and law enforcement agencies around the globe and throughout the United States.

The CDTFA often shares highly incriminating information with other tax authorities, such as the Franchise Tax Board (FTB) and the IRS, making it essential to handle the audit with extreme caution.

Criminal Exposure in Sales Tax Audits

These audits are widespread among cash-intensive businesses in Oakland, such as restaurants, bars, and companies operating in the California Underground Economy. Businesses that use zappers or other sales suppression devices are especially vulnerable to criminal exposure. A poorly handled audit or an eggshell sales tax audit that uncovers discrepancies can result in significant additional tax assessments, fines, and penalties.

Furthermore, the CDTFA is known to report violations uncovered during an audit to other government agencies. For businesses like bars that require licenses or for licensed professionals, this could lead to a suspension or loss of the business’s ability to operate. For many, this marks the beginning of a series of events that can be described only as a nightmare.

Applicable CDTFA Criminal Tax Statutes

The California Department of Tax and Fee Administration (CDTFA) has several applicable criminal tax statutes that businesses should be aware of. Under Section 7153, any person who submits a false or fraudulent return with the intent to evade tax liability is guilty of a misdemeanor. Penalties for this violation include fines ranging from $1,000 to $5,000, imprisonment of up to one year in county jail, or both.

Under Section 7153.5, if the unreported tax liability exceeds $25,000 over 12 months, the offense is elevated to a felony, punishable by fines ranging from $5,000 to $20,000, imprisonment for 16 months, two years, or three years, or both.

Additionally, under Section 7153.6, using automated sales suppression devices or zappers to defeat or evade sales tax obligations is also a misdemeanor. The law requires any person using such devices to pay all taxes, interest, and penalties due to their use. Any prosecution for violations of these criminal tax provisions must be initiated within five years from the commission of the offense or within two years after the violation is discovered, whichever is later.

Consequences for Licensed Professionals and Businesses

A criminal conviction for tax fraud can have devastating consequences for licensed professionals and businesses in Oakland that depend on state permits. For instance, under California Business and Professions Code Section 24205, an alcoholic beverage license can be suspended if a business falls more than three months behind on sales and use tax payments. In cases where an alcoholic beverage license is tied to a delinquent seller’s permit, the suspension can be immediate.

Similarly, licenses for the sale of cigarettes and tobacco products can be suspended or revoked for the sale of untaxed products, further amplifying the potential negative consequences of a poorly managed audit.

How to File an Appeal and Dispute a CDTFA Sales Tax Audit Finding

In California, tax disputes are generally addressed by the California Office of Tax Appeals (OTA). This unbiased and autonomous appeals body handles tax disagreements involving the CDTFA (formerly BOE), FTB, and EDD, interest charges, and/or penalties associated with income taxes, sales and use taxes, and other state taxes. Following is the process of filing an appeal for CDTFA sales tax audit findings:

Step 1: Filing the Petition

• If the CDTFA determines that you owe additional taxes or penalties, you will receive a Notice of Determination displaying the amount owed.
• To dispute the Notice of Determination, you must file a petition for redetermination within 30 days of the notice.
  • Meeting the deadline: It is crucial to meet the 30-day deadline. If you miss it, your liability will become final and due immediately, with no further recourse except paying the amount owed and then filing a refund claim.
• The petition must contain specific criteria set by the CDTFA, the most important being a clear, detailed, and factual basis for your disagreement.
• The petition can be filed online, via fax, or by mail.

Step 2: Appeals Conference

• After filing your petition for redetermination, the Business Tax and Fee Division (BTFD) will review it and issue a decision.
  • If you disagree with the decision, you must request an appeals conference within 30 days. Failure to do so will result in issuing a Notice of Redetermination, and your appeal will end.
• The appeals conference is an informal discussion of the relevant facts and applicable law regarding your appeal. The Appeals Bureau will review any evidence or information you present at this stage, provided it meets specific standards. The BTFD will also be able to argue its case, making skilled legal representation critical at this stage.

Step 3: Appeals Bureau Decision

After reviewing both sides’ arguments and evidence, the Appeals Bureau will issue a decision in writing. Depending on the Appeals Bureau’s findings, your appeal may be granted, denied, or partially granted.

It is in your best interest to consult an experienced dual-licensed Oakland CDTFA Appeals Tax Attorney & CPA before filing an appeal or petition for redetermination due to the legal and financial complexity involved. As the CDTFA cautions taxpayers, “An appeal can be referred back to a prior step. As a result, you may go through some steps in the appeals process more than once.” Our skilled Tax Litigation & Appeals Lawyers & supporting CPAs have extensive experience handling cases of criminal sales tax exposure, guiding you through a civil sales tax audit, eggshell sales tax audit, reverse eggshell sales tax audit, and defending against a criminal sales tax investigation. As an experienced litigator, David W. Klasing Esq. M.S.-Tax CPA can represent you in the Federal and California Tax Courts and the Office of Tax Appeals. Call (510) 764-1020 or schedule a reduced-rate initial consultation here at our Oakland office or other convenient locations across Northern California.

Contact Us Today If You Have Been Approached by the CDTFA

If you know you cheated on your tax returns and have been approached by the California Department of Tax and Fee Administration (CDTFA) the biggest mistake you can make is to consult the original tax preparer regarding the sales tax audit or criminal sales tax investigation. The preparer will almost certainly act as government witness number one against you and often has a conflict of interest. They often prioritize protecting their reputation, even if it means incriminating you.

Moreover, any third party, including a spouse, business partner, or employee, can unwittingly become a witness for the government. Suppose the CDTFA has contacted third parties and informed you of the contact. In that case, you should immediately advise them to speak with our dual-licensed Oakland Criminal Tax Defense Attorneys and CPAs before taking further steps. These individuals mustn’t make statements that could harm your case.

Remember that the confidentiality typically extended to certain communications between an accountant and a taxpayer does not apply in a criminal sales tax case. Therefore, it is critical to have an experienced criminal sales tax defense attorney handle the investigation rather than relying on your accountant, who may not be equipped to deal with your case’s complexities and potential criminal sales tax implications. While your accountant may feel comfortable managing a standard sales tax audit or sales tax controversy matter, any case involving sales tax fraud or false sales tax statements requires the expertise of a specially trained sales tax defense attorney to ensure the best possible outcome.

At the Tax Law Offices of David W. Klasing, our firm provides a unique platform by combining the skills of dual-licensed Criminal Sales Tax Defense Attorneys and Kovel CPAs to efficiently achieve optimal and predictable results, simultaneously protecting both your liberty and your net worth. Our team is uniquely positioned to develop effective strategies addressing both civil and criminal sales tax issues.

David W. Klasing is a dual-certified tax attorney and CPA. His sales tax audit approach analyzes problems from multiple perspectives and can address common issues in initial negotiations. Taking a proactive approach can prevent or mitigate serious, foreseeable issues. If you have received notice from the CDTFA, 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