San Francisco Attorney for Franchise Tax Board (FTB) Audits

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As a hub for both technology and healthcare industries, San Francisco plays a crucial role in California’s overall economy. However, this growth and economic dynamism come with the heightened responsibility of navigating some of the nation’s most complex and strictly enforced federal & state tax regulations. The Franchise Tax Board (FTB) and the IRS impose rigorous regulations, conducting audits, investigating fraud, and assessing significant taxes, interest, and penalties for non-compliance. As an economic hub, San Francisco also faces unique challenges and scrutiny in tax matters, making it essential for businesses and individuals to seek knowledgeable legal representation.

What is California Tax Fraud?

California tax fraud is defined as any intentional act committed to violate California tax laws, enabling a taxpayer to reduce their tax liabilities illegally. This often involves tax evasion, which can be categorized into evasion of tax assessment—deliberately underreporting income to avoid accurate tax assessment—and evasion of tax payment, which includes concealing assets to circumvent fulfilling tax obligations.

Tax fraud encompasses a range of illicit activities beyond evasion:

• Filing a tax return using someone else’s identity without their permission.
• Claiming unauthorized deductions.
• Submitting false documents alongside a tax return.
• Failing to collect or remit employment taxes.
• Not filing a tax return at all.

For a conviction of tax fraud, the actions must be willful, meaning they were purposefully executed to defraud the State of California, not merely due to oversight or error. This distinction is crucial as it differentiates criminal tax fraud from mere negligence.

As such, residents and businesses in California must be vigilant about potential criminal tax violations and the signs that may indicate they are under a more rigorous investigation by the Franchise Tax Board’s criminal enforcement function. Like the IRS’s Criminal Investigation Division (CID), the FTB has robust investigative powers and focuses on severe tax fraud and evasion cases. The criminal function of the FTB, which works in close collaboration with the California Bureau of Investigation, is tasked with uncovering and prosecuting complex tax crimes within the state. These investigations often focus on large-scale tax evasion schemes, abusive tax shelters, and fraudulent tax preparer activities. The goal is to ensure compliance with California’s tax laws and prosecute cases involving substantial civil and criminal tax penalties.

Call (415) 287-6568 or 888-640-3408 or contact us online today to schedule a reduced rate initial consultation at our San Francisco tax law offices or one of our other convenient locations across Northern or Southern California.

FTB’s Role in Detecting and Prosecuting Tax Fraud

The California Franchise Tax Board (FTB) is critical in auditing and investigating state income tax returns. These audits often target suspected underreporting of income or overstated deductions. The FTB also reacts to findings from federal audits, potentially initiating their investigations or levying additional state taxes based on federal results, often including penalties for non-compliance.

The FTB is particularly vigilant in cases where taxpayers may:

• Claim residency in another state while living in California.
• Falsify claims for refunds or intentionally underreport California taxable income.
• Repeatedly close and reopen businesses as a tactic to evade taxes.
• Alter or falsify business records to misrepresent financial activities.
• Operate within the underground economy to avoid tax obligations.

These actions can trigger criminal tax investigations and prosecutions for income tax fraud by the FTB, especially when they involve deliberate attempts to deceive California state tax authorities.

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 audit 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 “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 tax prosecution. The taxpayer, however, may not be aware that the clandestine audit is potentially criminal in nature.

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.

How to Navigate the FTB Audit Appeals Process in San Francisco, CA

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 Francisco

1. Filing an Appeal:
   • You have 60 days from the FTB’s audit 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.

1. 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.

1. 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 specifically 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.

1. 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 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.

Contact Our San Francisco FTB Audit, Appeals and Criminal Tax Investigation Lawyers Today

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 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 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.

Whether you have recently been notified that you were selected for an audit and need help navigating the following steps or have already been audited and are now seeking FTB or IRS appeals representation, our aggressive IRS, FTB, CDTFA (BOE), and EDD negotiators (where necessary Tax Litigators) are ready to act on your behalf. To date, we have never lost in federal tax court. We won’t take your case if we don’t believe we’ll win.

Call (415) 287-6568 or 888-564-1409 or contact us online today to schedule a reduced rate initial consultation at our San Francisco tax law offices or one of our other convenient locations across California.