Awards & Recognition
Situated along the picturesque coastline of Southern California, San Diego is a bustling city with a population of over 1.4 million residents. As a major economic centre, San Diego plays a critical role in California’s economy, with key industries such as military defence, tourism, biotechnology, and technology driving growth. However, the city’s economic vibrancy and diversity come with the added challenge of adhering to some of the nation’s most stringent tax regulations. Businesses in San Diego must navigate the complex rules imposed by the Franchise Tax Board (FTB) and the IRS, which conduct rigorous audits, investigate instances of tax fraud, and impose substantial taxes, interest, and penalties for any non-compliance.
What Should I Do If the FTB Contacts Me About an Audit?
The California Franchise Tax Board (FTB) enforces the state’s income tax laws. The FTB may conduct their investigations regarding issues unique to California’s income tax laws or may bring a challenge based on their assessment of your level of compliance. For example, there may be issues if you recently moved to San Francisco regarding:
- When you became a resident,
- When you started owing taxes to the state.
The IRS and the California FTB have different rules regarding net operating losses. As such, you may sometimes owe large debts to the FTB even if you are not found to owe anything to the IRS. California tax audits are no less severe than federal audits because California also prosecutes tax crimes and will report the audit results and or suspected tax fraud to the IRS. Therefore, you will be forced to amend your federal returns to agree to the results of the California Audit.
Do not panic if the FTB notifies you of a greater tax liability than you initially anticipated. It is possible that the FTB auditor made an error and reached an inappropriate conclusion regarding your liability. You may owe considerably less than the FTB plans to bill you for. It is worth exploring the possibility of:
- Filing a written protest,
- Appealing to the Office of Tax Appeals if the FTB has already issued a Notice of Action
At the Tax Law Offices of David W. Klasing, we are nationally recognized, award-winning tax attorneys & CPAs who bring nearly three decades of combined experience to each appeal and protest 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 we handle:
- Holding your tax liabilities to a minimum;
- Providing you with 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 California state law.
If you have any questions about protesting an FTB decision, contact our California FTB audit attorneys online here, or call (619) 780-2538 or 888-640-3408 to schedule a reduced rate initial consultation at our San Diego tax law offices or one of our other convenient locations across Southern California.
Why Is It Important Not to Ignore an FTB Notice?
For the 2024 tax year, California has nine income tax brackets, ranging from 1% to 12.3%, depending on taxable income. Specific individuals may also be subject to the Alternative Minimum Tax (AMT), which is set at 7%. Additionally, those with taxable income exceeding $1 million are subject to the Mental Health Services Tax of 1% on any income over this threshold. Residents of Los Angeles typically file their individual California Resident Income Tax returns using Form 540 or Form 540 2EZ. Taxpayers who fail to meet their federal or California state tax obligations may receive a notice of deficiency / proposed assessment from the relevant tax agency, often leading to penalties and interest. It is never prudent to ignore an FTB notice, even if you disagree with its findings or are unsure precisely what the notice is in reference to. Contrary to being forgotten, interest on any unpaid tax debts will simply continue accruing until your debt is satisfied.
How Can Professional Legal Representation Help with an FTB Audit?
At the Tax Law Offices of David W. Klasing, our experienced dual-licensed San Diego tax attorneys and CPAs will act as a barrier and stop the examining agent from inferring criminal admissions/confessions from your actions and words. We excel at representing clients under high-risk federal or California state tax audits, especially when they blatantly cheat on the tax return under audit and thus fear California or Federal criminal tax prosecution. In addition to having years of experience as a dually licensed Tax Lawyer and CPA in San Diego, our founder and principal attorney, David W. Klasing, possesses decades of experience as a former auditor in public accounting and has represented clients in 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.
How Do Different Tax Agencies Share Information During an Audit?
Another reason why it is so vital to work with a tax lawyer from the outset is the fact that the IRS and California State tax agencies are all known to share information. These organizations are (1) the Franchise Tax Board (FTB), which audits California personal and corporate income tax returns; (2) the California Department of Tax and Fee Administration (CDTFA) (formerly known as the BOE), which performs California sales tax audits; and (3) the Employment Development Department (EDD), which performs California employment tax audits. Accordingly, the FTB, EDD, and CDTFA may audit your California tax return(s), depending on what sort of return(s) you or your business filed. If an IRS or California state agency audit discovers problems or other improprieties, they will likely share this information with the sister agency. Thus, it is common for taxpayers to face a federal and subsequent California state tax audit and vice-versa.
What Constitutes Tax Fraud Under the California FTB?
Tax fraud in California involves actions or attempts that violate state laws with the intent to evade total tax liabilities. The FTB aggressively investigates and prosecutes cases of tax fraud, often focusing on individuals or businesses that have intentionally misrepresented their tax situations. While tax fraud is usually synonymous with tax evasion, the latter is just one form of tax crime that can lead to serious legal repercussions.
What Are the Main Types of Tax Evasion?
Tax evasion can be categorized into two primary forms:
- Evasion of Tax Assessment: This occurs when a taxpayer deliberately underreports their income or falsifies records to avoid being assessed the correct amount of taxes. For example, failing to disclose income from side jobs or significantly overstating deductions to lower taxable income falls under this category.
- Evasion of Payment: This involves intentionally hiding assets or income to avoid paying taxes that have already been assessed. It could include practices like transferring assets to relatives or maintaining hidden bank accounts.
Examples of Criminal Tax Fraud Investigated by the FTB
The FTB has specific areas it scrutinizes when investigating potential tax fraud. Examples of criminal activities that can lead to severe penalties include:
- Claiming Residency in Another State: Falsely claiming to be a resident of another state while living in California to avoid higher California taxes.
- Making False Refund Claims: Intentionally inflating or fabricating deductions or credits to obtain a tax refund to which the taxpayer is not entitled.
- Reopening Businesses to Evade Taxes: Some business owners may close and reopen businesses under new names to evade outstanding tax liabilities.
- Falsifying Business Records: Manipulating records to underreport income or expenses, thus reducing taxable income.
- Participating in the Underground Economy: Engaging in cash-only transactions and failing to report such income, which is common in specific industries like restaurants and construction.
Why is Willful Intent Important in FTB Prosecutions?
The key factor that transforms an act of tax non-compliance into a criminal offense is willful intent. To be convicted of tax fraud, the FTB must prove that the taxpayer’s actions were deliberate and aimed at deceiving the state of California rather than being a result of an honest mistake. For example, the difference between accidentally omitting income due to poor bookkeeping and purposefully hiding income through falsified records could determine whether the case remains a civil matter or becomes a criminal tax prosecution.
What Are the Consequences of Criminal Tax Fraud?
If a taxpayer is found guilty of intentionally underreporting income or committing other forms of fraud, the penalties can be severe, including:
- Significant Fines: Depending on the nature of the offense, fines can be substantial, making the financial burden much heavier than the original tax liability.
- Imprisonment: Serious cases can result in time spent in state prison, especially if the amount of unreported tax is high.
- Reputational Damage: A criminal tax conviction can have lasting effects on an individual’s or business’s reputation, making future dealings with financial institutions or potential business partners challenging.
If you are under audit or investigation by the FTB for suspected tax fraud, seeking legal counsel is critical. At the Tax Law Offices of David W. Klasing, we have extensive experience in navigating both the complexities of FTB audits and defending against criminal tax charges. Our seasoned dual-licensed San Diego Audit Appeals and Tax Litigation Attorneys and CPAs specialize in navigating both IRS and California state tax disputes, adeptly managing sensitive audits (where you cheated on the tax returns under audit) to ensure a civil resolution and avoid criminal tax prosecution. 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 experienced counsel is invaluable. As a skilled litigator, David W. Klasing Esq. M.S.-Tax CPA can represent you in the Federal or California Tax Court.
How to Navigate the FTB Audit Appeals Process in San Diego
Understanding the Role of the Office of Tax Appeals (OTA)
In response to the complexities of tax disputes, the Taxpayer Transparency and Fairness Act of 2017 established the Office of Tax Appeals (OTA) as an independent body in California. The OTA handles appeals related to various tax issues, including sales and use taxes, corporate income taxes, and personal income taxes for California taxpayers. If you disagree with the results of an FTB audit, you have the right to protest or challenge the audit findings through this independent avenue. However, navigating the appeals process can be intricate and carries the risk of significant financial penalties if not handled correctly.
Steps to Appeal an FTB Audit in San Diego
- Filing an Appeal:
- You have 60 days from the FTB’s decision to file an appeal.
- Your appeal submission must include legal and factual arguments contesting the audit findings.
- You can also request an oral argument date to present your case in person.
- Presenting Your Case to the FTB:
- An impartial representative from the FTB will first review your initial appeal.
- During this stage, you may present legal documents, oral arguments, and other evidence to demonstrate inaccuracies in the audit findings, either in legal or factual terms.
- The FTB will then decide whether to uphold, modify, or withdraw the original tax assessment based on the evidence provided.
- Escalating to the Office of Tax Appeals:
- If the FTB’s internal appeals process is unsatisfactory, the next step is to appeal to the OTA.
- The OTA was explicitly created to provide a fairer hearing process than the prior system managed by the Board of Equalization (BOE).
- You must file your intent to appeal with the OTA within 30 days following the FTB’s final decision.
- The OTA will then review all presented evidence and issue a binding decision.
- Requesting a Rehearing or Pursuing Legal Action:
- If the OTA’s decision is unfavorable, you can request a rehearing if you have new evidence or believe there was an error in the decision-making process.
- As a last resort, you can file a lawsuit in the California Superior Court, representing the most formal step in the tax appeals process.
If you intend to protest the outcome of an FTB audit, consult an experienced San Diego tax lawyer to ensure that you are taking the best action to protect yourself. At the Tax Law Offices of David W. Klasing, our tax professionals have represented Californians in tax appeals before the IRS and FTB for nearly three decades and will take your case 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.
Proactive Strategies for California State Voluntary Disclosure and Tax Compliance
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. This approach provides a structured and secure way to amend your fraudulent tax returns while steering clear of criminal tax prosecution. Like the IRS, the State of California’s Franchise Tax Board (FTB) and the California Department of Tax and Fee Administration (CDTFA) offer methods for non-compliant taxpayers to become compliant again by disclosing their non-compliance with state tax laws. The approach for voluntary disclosure to the FTB varies depending on whether you file taxes from within or outside the state.
Our dual-licensed San Diego Domestic and International Tax Compliance Attorneys & CPAs specialize in navigating the intricacies of both federal and California state voluntary disclosures. This includes domestic and offshore disclosures, CDTFA and FTB voluntary disclosures, streamlined procedures, and procedures for delinquent FBAR and international information return submissions. Taxpayers in San Francisco who have willfully evaded Federal and California state taxes, including not filing foreign information returns, can generally return to compliance and avoid criminal tax prosecution if they voluntarily disclose their tax non-compliance before the IRS or California State agency initiates an audit or criminal tax investigation.
For any tax planning compliance and controversy needs in San Diego, contact the Lawyers at The Tax Law Offices of David W. Klasing today. Our experienced Tax Lawyers offer a reduced-rate consultation on new cases or engagements. Call (619) 780-2538 or 888-640-3408 or contact us online today to schedule a reduced rate initial consultation at our San Diego tax law offices or one of our other convenient locations across Southern California.
Click on the following to learn more:
- Procedures for Appealing an FTB Audit
- FTB’s Manual on Audits, Protests, and Appeals
- FTB Debt Collections with Disability Benefits
- California Franchise Tax Voluntary Disclosure program
- Tax Refund by FTB to Pay off Debts
- FTB Disability Recipient Debt
- FTB Outstanding Tax Debt
- California Tax Wage Garnishment
- Time Limits on FTB Tax Debt Collection
Our San Diego Office is Conveniently Located at:
501W Broadway Suite 300,
San Diego, CA 92101
(619) 780-2538F
