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If you are a resident of California, not only are you required to file a federal income tax return, you must also file a California state income tax return. While federal tax returns are processed by the IRS, your state tax return should be filed with the California Franchise Tax Board (FTB), which is the state agency responsible for administering California income tax regulations – and conducting California income tax return audits. Other types of state tax audits are performed by the Employment Development Department or California Department of Tax and Fee Administration, as this article explains in detail.
No matter what type of audit you are facing in California, don’t approach the process without help from a skilled and experienced California Tax Audit Attorney & CPA. To discuss your California audit question confidentially in a reduced-rate consultation, call (805) 617-4566, or contact the Tax Law Office of David W. Klasing online to schedule an appointment at our San Jose office. Please note that all meetings at our San Jose tax office are by appointment only.
See our Audit Representation Q and A Library
Are the IRS and FTB the Same?
No. The IRS is the Internal Revenue Service, a federal agency which is part of the U.S. Department of the Treasury. The FTB, or Franchise Tax Board, is a state agency that operates within the California Government Operations Agency.
The IRS administers all types of federal tax laws, from those dealing with federal income and employment taxes to federal estate and gift taxes. The FTB, on the other hand, specifically administers California income sales and employment taxes (personal and corporate).
Other types of California taxes are administered by different state agencies. For example, the Employment Development Department (EDD) administers California employment taxes, while the California Department of Tax and Fee Administration (CDTFA) administers California sales tax. The FTB conducts California income tax audits, the EDD conducts California employment tax audits, and the CDTFA conducts California sales tax audits. Our tax office has extensive experience representing taxpayers in EDD, CDTFA, and FTB tax audits, including online and out-of-state business entities.
See our Sales Tax Q and A library
See our Employment Tax Law Q and A Library
How Far Back Can a California State Tax Audit Go?
Another way of phrasing this question is, what is the California tax audit statute of limitations? The answer is generally four years, which is one year longer than the IRS has under normal circumstances. However, in cases involving fraud or non-filing, an audit may be conducted at any time.
When Does California Audit Tax Returns?
Like IRS auditors, state tax auditors are trained to seek out and identify numerous tax fraud indicators and other informational discrepancies in your tax documents. The FTB or other California tax agencies may audit you or your business for the following reasons:
- Excessive claiming of credits or deductions
- Underpayments of state taxes
- Underreported income
- Unfiled or delinquent tax or information returns
- Unreported sources of income
Note that this is not an exhaustive list of all possible California audit triggers. If you are concerned that you are at high risk for an audit, get on top of the situation now by contacting an attorney for help.
Can You Appeal an FTB, EDD or CDTFA Tax Audit?
When it comes to the results of your audit, there is both good news and bad news. The bad news is that, not only might the FTB, EDD or CDTFA determine that you owe additional tax, interest, or penalties – they could also reach an incorrect conclusion on either the law or facts of your case. While auditors are trained to be thorough and meticulous, errors resulting in highly inaccurate findings against the taxpayer are all too common.
The good news is that state tax regulations and the California legislature have created appeal routes by which taxpayers can dispute inaccurate audit findings. If you think the FTB made a mistake during your audit, and you believe that your auditor’s findings are flawed as a result, you can challenge the results of your FTB audit by requesting appeals. However, you must wait to appeal an FTB tax audit until you have received either an Appeals Bureau Decision or a Notice of Action from the FTB or CDTFA. Only once you have received one of these documents may you file an appeal.
From that time onward, it is vital to act quickly, as you will lose your right to appeal if you miss the “appeal-by” deadline provided to you. Your request for appeals must include, among other forms and information, any financial or legal records or helpful interpretation of pertinent tax law supporting your claim, in addition to copies of your FTB, EDD or CDTFA notices. In California, state tax appeals are heard by a relatively new organization called the Office of Tax Appeals (OTA), which was established in 2017.
California State Tax Return Audit Lawyers and CPAs in San Jose
A tax return audit exposes you and your business to myriad consequences, including but not limited to unexpected tax assessments, costly interest charges, assorted fines and penalties, the risk of a criminal tax investigation, and potential loss of professional licenses and certifications if prosecuted and convicted. Take action to protect yourself by contacting an experienced attorney-CPA, like David W. Klasing, who can effectively advocate and negotiate for you throughout the auditing process. To discuss your audit questions confidentially, call (805) 617-4566, or contact the Tax Law Office of David W. Klasing online to set up a reduced-rate consultation today.
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:
