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If you live, work, or do business in the state of California, you may someday come face to face with one of the state agencies responsible for performing California tax audits. Just as the IRS audits taxpayers who fail to comply with federal tax laws, California government agencies audit state residents and businesses that fail to comply with the state’s tax regulations, which are codified in the California Revenue and Taxation Code (RTC).
See our Audit Representation Q and A Library
Whether you are a Sacramento business owner, a recent transplant to California, or a lifelong resident, you will require legal assistance when preparing for and dealing with your audit. At the Tax Law Office of David W. Klasing, we are award-winning California tax attorneys and CPAs with nearly three decades of audit defense experience preparing us to deal effectively with FTB, EDD and CDTFA auditors, obtain evidence that aids your case, hold tax penalties to a minimum, and minimizes your risk of criminal tax prosecution. If you or your business is facing any type of state tax audit in the Sacramento area, count on the Sacramento tax lawyers at the Tax Law Offices of David W. Klasing for guidance you can trust.
Who Performs State Tax Audits in California?
Most taxpayers are already aware that the Internal Revenue Service, or IRS, examines income tax returns and other federal tax forms for accuracy. When errors, omissions, discrepancies, or other problems are detected, the IRS may request more information or, where necessary, initiate a tax audit.
The same ideas apply to state taxes, with one key difference between California and IRS audits: California audits are conducted by state agencies rather than the IRS, which deals exclusively with federal tax issues. These agencies are:
- The Franchise Tax Board (FTB), which performs California income tax audits
- The California Department of Tax and Fee Administration (CDTFA), which performs California sales tax audits
See our Sales Tax Q and A library
- The Employment Development Department (EDD), which conducts California employment tax audits
See our Employment Tax Law Q and A Library
Why Might the FTB, CDTFA, or EDD Start a California Tax Audit?
Even though some audits are triggered by seemingly random or innocuous details – for example, some audits are triggered because the taxpayer earns a high salary, or because they happen to operate a certain type of business – it is critical to take the audit notice seriously and seek immediate legal counsel. There are many issues that can prompt an EDD, CDTFA, or FTB tax audit in California – and what begins as an examination of one issue can snowball into a much broader criminal tax investigation. Examples of tax compliance problems or audit “red flags” that can spur an examination include, but are not limited to, the following:
- Claiming California tax credits you are not qualified for
- Claiming dependents who do not exist
- Failing to file California income tax returns
- Failing to pay your estimated state income tax due
- Failing to report taxable income
- Filing multiple delinquent returns
- Inflating your business expenses
- Misclassifying employees as independent contractors
- Possessing assets that greatly outvalue your reported income
- Reporting very high or low income
- Running a cash-based business
- Using stolen information or identities on a state tax return
What Are the Potential Outcomes of a California State Tax Audit?
Some audits end uneventfully: the questions at hand are satisfactorily answered, and there is no need for the taxpayer to take further action. Unfortunately, most audits do not have such a tidy resolution for the taxpayer. In many instances, the auditor will discover an issue (such as an unpaid tax debt) that requires the taxpayer to take additional steps after the audit ends. Depending on what the auditor finds, potential outcomes of an audit include the following:
- The auditor may determine that you owe additional tax, such as an unpaid California income tax liability.
- The auditor may determine that, in addition to any unpaid taxes you might owe, you should also be charged interest, which accrues on unpaid taxes (subject to certain limitations).
- The auditor may determine that you have engaged in civil tax violations and should be penalized or fined accordingly.
- The auditor may find evidence to suggest that tax crimes have occurred, in which case the audit will likely be terminated as the case is referred for a criminal investigation.
You may dispute, or “appeal,” the outcome of an FTB, CDTFA, or EDD tax audit with which you disagree. However, be forewarned that your California tax appeal must be thoroughly supported by objective factual evidence, such as case law and pertinent tax regulations. Our office can assist you with this process. The issue to be argued to succeed in an appeal or tax litigation is why does the FTB, EDD or CDTFA have either the facts or the law wrong and therefore have not reached a proper conclusion in your audit. A dually licensed California Tax Attorney and CPA is in the best position to prevail in any subsequent appeal or litigation.
Sacramento, CA State Tax Lawyers + CPAs for EDD, CDTFA, and FTB Audits
Even if you believe you are in full compliance and have kept meticulous tax and financial records, you could still be in jeopardy of interest charges, fines and penalties, or a higher-than-expected tax assessment. A Sacramento tax audit attorney can lower the risk of these outcomes by negotiating tactically with auditors, ensuring that evidence is presented clearly and effectively, and making sure that no avenues toward resolution are overlooked.
For a reduced-rate consultation with the Sacramento tax attorneys at the Tax Law Office of David W. Klasing, contact us online right away, or call our Sacramento tax office at (916) 290-6625. Please be advised that all meetings at our Sacramento office must be scheduled in advance.
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:
