Awards & Recognition
Much as your federal tax returns can be audited by the IRS, your state tax returns can be audited by California agencies, such as the Franchise Tax Board (FTB), Employment Development Department (EDD), or California Department of Tax and Fee Administration (CDTFA). At the Tax Law Office of David W. Klasing, we are Santa Barbara tax audit attorneys with more than 20 years of combined experience providing FTB, EDD, and CDTFA audit representation to individuals and businesses, including taxpayers who are not California residents but owe state income, sales, or employment taxes.
If you were contacted by the IRS or a California taxing authority, and informed that you will be facing an audit, there is no need to panic. Audits arise for a multitude of reasons, and may not always mean that you are in trouble. However, it does mean the IRS, or California Taxing Authority such as the California Franchise Tax Board, FTB, California Department of Tax and Fee Administration, CDTFA (BOE), California Office of Administrative Hearings, OAH, California Employment Development Department, EDD, will be asking for information, demanding documentation, and reviewing your records and tax filings with incredible scrutiny.
If you are a California resident or out-of-state taxpayer who has been chosen for an EDD, CDTFA, or FTB tax audit, turn to our Santa Barbara tax attorneys and CPAs for zealous, 24-hour assistance.
Do State Tax Returns Get Audited?
The IRS exclusively audits federal returns, such as the federal income tax return (Form 1040) you file each April. California tax returns are examined by California tax authorities, as described in the following section.See our Audit Representation Q and A Library
Who Audits State Taxes in California?
In the state of California – which boasts the nation’s largest economy, but also grapples with some of its most complex tax regulations – there are three organizations authorized to administer tax laws and process returns. 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), which performs California sales tax audits; and (3) the Employment Development Department (EDD), which performs California employment tax audits. Accordingly, the FTB, EDD, and/or CDTFA may audit your California tax return(s), depending on what sort of return(s) you or your business filed.
Taxpayers should be advised that these agencies routinely share information with, and receive information from, the IRS. Information-sharing regulations are set forth under 26 U.S. Code § 6103 (pertaining to “confidentiality and disclosure of returns and return information”), with 26 U.S. Code § 6103(d)(1) providing, “Returns and return information… shall be open to inspection by, or disclosure to, any State agency, body, or commission,” subject to certain criteria.See our Sales Tax Q and A librarySee our Employment Tax Law Q and A Library
How Long Can State Taxes Be Audited in California?
There are many differences between state and federal tax audits. One of the most significant differences is the statute of limitations for a tax audit – in other words, the maximum number of years the taxing authority can go back in time for an audit.
The IRS statute of limitations to audit is generally three years, with exceptions where longer time periods apply. In some cases, the IRS may audit your returns for up to six years, while in others, there is no applicable time limit. In California, the statute of limitations to audit is generally four years, giving the state of California an additional 12 months to audit.
Why Did the FTB, EDD, or CDTFA Choose Me or My Business for a California Tax Audit?
Do not panic if you have received an audit notice from the FTB, CDTFA, or EDD. Being selected for a California tax audit is not necessarily indicative of wrongdoing by the taxpayer. That being said, it is essential to heed your notice carefully and follow any deadlines or instructions provided therein, which our tax audit lawyers will assist you with.
Even if your return is error-free, there are many reasons you or your business may have been chosen for an examination. For example, businesses are sometimes targeted for auditing because they are part of a certain industry, because they make numerous cash transactions, or because their assets fall within a certain range.
A mistake or omission will greatly increase your likelihood of being audited. Common tax errors that can trigger audits include:
- Attempting to use another taxpayer’s personal information on your return
- Failing to report financial accounts, assets, or sources of income
- Failure to file tax returns
- Failure to pay taxes
- Filing delinquent tax returns
- Improperly or falsely claiming credits, deductions, or dependents
- Underreporting your income
See our Non-Filer Q and A Library
What Should I Do if I am Being Audited for a Tax Crime?
If you are facing a Federal or California tax audit, it does not have to be the end of the world. An audit does not automatically mean that you are currently in trouble with the IRS, FTB, CDTFA (BOE), or EDD or that you could wind up facing criminal tax charges. Audits can occur on a random basis under the IRS’s national research program, or may be triggered by as statistical analysis of the deductions or credits that place your taxes outside the statistically proper norms. An audit could also be triggered if your business partners, company, or investors are facing audits or investigations for tax crimes or other serious tax issues – but that does not automatically mean that you, personally, did anything illegal. But after over 2 decades of audit and criminal tax investigation representation experience, it is very rare, in our opinion, that the IRS, FTB, CDTFA (BOE), or EDD is completely satisfied that your original taxes were filed correctly. Moreover, it is very rare where a Federal or California tax audit ends without the assessment of additional tax, penalties and interest, at a minimum, therefore it behooves you to protect yourself. If the IRS, FTB, CDTFA (BOE), or EDD finds serious inconsistencies, failures to file, improperly excluded taxable income, or other violations of the Tax Code, they may assess additional tax, penalties and interest at best, or, at worst, refer your case to their criminal division.
The first step after receiving notice that you are being audited or criminally investigated for tax crimes by a Federal or California tax authority, should be to contact an IRS Audit and Criminal Tax Defense Attorney. The Tax Lawyers, CPAs and EAs at The Tax Law Offices of David W. Klasing are ready willing and able to fight to protect your constitutional rights and help mitigate the assessment of additional tax, civil and criminal penalties and interest.
The next step should be to confirm that the audit or criminal tax investigation is legitimate. There are thousands of scams where individuals pretend to be IRS employees in an attempt to dupe taxpayers into paying them money. These sorts of scams are unacceptable, and our Firm can help you verify the legitimacy of any alleged audits or criminal tax investigations against you.
After contacting a Tax Attorney, you should begin gathering all of the economic records you can. Audits may not apply for the most recent tax season, but could reach back up to six years. The typical audit deals with the taxes from two to three years ago, and may come well after filing. Collecting your tax records, investment records, pay stubs, other economic records and accounting records, back this far may be a complex task, but may ultimately help protect you from the negative outcomes of an audit or criminal tax investigation.
Defending Against an IRS, FTB, CDTFA (BOE), or EDD Audit
Even if a Federal or California audit or investigation turns up incriminating evidence against you, there is still a chance to defend yourself – or better yet, hire a Tax Audit or Criminal Defense Tax Attorney to defend you. The taxing authority’s determination that your taxes were improperly filed and related assessment of additional tax, penalties and interest is not automatically correct. Neither is any assertion that you committed a tax crime. The taxing authorities often misinterpreted the law or facts and overlook / discount evidence that would mitigate or reduce their assessment, or even prove that your original tax filings were correct or that you have not committed a tax crime. Our team of Tax Attorneys, CPAs and EAs are ready willing and able to appeal or litigate your case, either to mediation or to Tax Court or to California’s Office of Tax Appeals. We also have extensive experience and success in defending Federal and California criminal tax investigations.
At the end of an audit or investigation, the IRS, FTB, CDTFA (BOE), or EDD will either determine that your taxes were correct and there is no adjustment necessary, or that something was wrong, and you need to pay additional taxes, penalties and interest and a determination that a tax crime was committed is possible. If the taxing authority does discover errors and or suspects acts of evasion, our Tax Attorneys, CPAs and EAs may be able to work with the taxing authority to come to an agreement that avoids criminal charges, corrects the errors, and sets you down a better path for future taxation. If the taxing authority is unable to agree to a beneficial plan, our Firm will shepherd your case through the appeals, litigation, or prosecution process, and attempt to overturn the taxing authorities’ assessment and vindicate you of the intentional or non-intentional “errors” they assert exist in your taxes.
Can I Appeal if I Disagree with the Outcome of a California State Tax Audit?
Unfortunately, auditors do not always deliver accurate or reliable findings and often get either the law or the facts wrong in reaching a tax assessment. If you believe that your auditor made a mistake and disagree with the results of your audit, you may dispute the outcome by requesting an appeal.
In California, tax appeals are heard by the Office of Tax Appeals (OTA), which describes itself as “an independent and impartial appeals body created by the Taxpayer Transparency and Fairness Act of 2017.” If you do not agree with FTB or CDFTA findings, you may file an appeal by either (1) completing and submitting OTA Form L-01 (Request for Appeal), or (2) filing a written request, which our office can help you prepare. You must submit your request before the “appeal-by” date displayed on your Appeals Bureau Decision or Notice of Action, one of which you must receive prior to filing an appeal.
California State Tax Return Audit Combo Lawyer + CPA in Santa Barbara
Complying with California’s tax regulations is not always an easy or straightforward task, especially for taxpayers who reside in other states, sell products online, or operate small businesses. The best way to avoid errors – and to minimize costly penalties – is to work with an experienced California Tax Lawyer, like David W. Klasing, who can help you navigate the state’s many tax regulations.
If you or your company has been targeted for an EDD, FTB, or CDTFA tax audit, or if you wish to appeal the results of a California tax audit, the Tax Law Office of David W. Klasing is standing by to provide 24/7 assistance. Contact us online right away to set up a reduced rate consultation or call our Santa Barbara tax office at (805) 200-4053.
Please note meetings at our Santa Barbara location are by appointment only.
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
