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A state tax audit is as serious as – and indeed, may lead to – a federal tax audit. California government agencies, such as the Franchise Tax Board (FTB), frequently share taxpayer data with the IRS. If your California tax returns were chosen for audit, you should discuss your situation with an experienced California tax lawyer as soon as possible. At the Tax Law Office of David W. Klasing, our legal team features former auditors, giving us an inside perspective supported by more than 25 years of experience. We know the procedures auditors must follow – and what tactics they use against taxpayers. We put our knowledge to work for you, seeking out effective strategies to mitigate penalties, interest, and tax liabilities.
In addition to preparing for your audit and negotiating on your behalf throughout the examination process, we also provide California tax appeals representation. If you disagree with the results of your audit, our attorneys can help you challenge the outcome, vigorously disputing improper penalties, interest charges, or proposed tax assessments. Contact us online right away to set up a reduced rate consultation or call the Tax Law Office of David W. Klasing at (800) 681-1295 to get started.
FTB, EDD, and CDTFA Tax Audit Attorneys in Sacramento, CA
When most people think about tax audits, they automatically picture the IRS. However, the Internal Revenue Service examines federal tax issues. If there is a problem with a California taxpayer’s state returns or other state tax documents, the appropriate California tax agency may initiate an audit. These agencies include the Employment Development Department (EDD), California Department of Tax and Fee Administration (CDTFA), and Franchise Tax Board (FTB).
For instance, EDD audits can be triggered by an employer’s noncompliance with California employment tax and payroll tax regulations. A common example is the misclassification of employees as independent contractors, which is illegal.
While EDD audits involve payroll tax issues, FTB tax audits generally arise from issues with a taxpayer’s California personal income tax return or business tax returns. For example, the taxpayer might have claimed an expired tax credit or utilized an abusive tax shelter. Other common “problem areas” that trigger state audits include unfiled California income tax returns, delinquent returns, and the underreporting of income. Our FTB tax audit lawyers have experience representing all types of taxpayers against the Franchise Tax Board, including individuals, C corporations, S corporations, LLCs, partnerships, nonprofit organizations, freelancers, and independent contractors.
CDTFA tax audits frequently involve sales and use tax issues, particularly with regard to internet sales tax compliance – a recent consequence of the Supreme Court’s 2018 ruling in South Dakota v. Wayfair, Inc. You should consult with an online business tax audit attorney right away if your business has been chosen for a California sales tax audit.
How Long Can You Be Audited in California?
Many taxpayers are already aware that, depending on the circumstances, typically the IRS has three to six years to audit a taxpayer, with some exceptions. However, different statutes of limitations apply in the state of California. The Franchise Tax Board can, potentially, initiate an examination for up to four years, giving the state an additional 12 months. Moreover, either a state audit or federal tax audit may be initiated at any time in cases where the taxpayer has allegedly committed tax fraud, and/or has failed to file income tax returns. Throughout the auditing period, the FTB and IRS may communicate information, which means that an FTB audit could lead to an IRS tax audit, or vice versa.
What if I Disagree with the Results of a California Tax Audit?
Auditors strive for accuracy, but errors occur, nonetheless. Unfortunately, an auditing error can translate to devastating outcomes for the taxpayer. If a taxpayer disagrees with the outcome of a California tax audit – for example, if the taxpayer believes that he or she was fined improperly – the taxpayer can request appeals. This initiates the process of disputing the audit’s outcome.
The California state equivalent of the IRS Office of Appeals is the California Office of Tax Appeals, or OTA, which was created in 2017 with the passage of the Taxpayer Transparency and Fairness Act. To file an appeal with the OTA, the taxpayer must:
- Receive either (1) an Appeals Bureau Decision or (2) a Notice of Action from the CDTFA or FTB
- Meet the appropriate deadline for filing the appeal (which will be specified on the taxpayer’s Appeals Bureau Decision or Notice of Action)
- Submit the appropriate documents, such as OTA Form L-01 (Request for Appeal)
To give your appeal the greatest likelihood of succeeding, it is vital to submit clear, detailed, and timely information that is well-supported by robust legal and factual evidence. As one section of OTA Form L-01 states, “You must identify what you believe is in error or has been omitted from the taxing agency’s decision and explain why the identified errors or omissions justify a different result” – without relying on frivolous tax arguments.
State Tax Audit and Appeals Attorneys in Sacramento, CA
An FTB, EDD, or CDTFA tax audit can spell financial peril for you and your business. Take steps to protect yourself by consulting with an award-winning tax audit lawyer in Sacramento, CA. To set up a reduced-rate appointment, contact the Tax Law Office of David W. Klasing online, or call our tax office today at (800) 681-1295.
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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.
