San Francisco Tax Audit Attorney + CPA
The San Francisco tax audit lawyers and CPAs at the Tax Law Office of David W. Klasing have over 20 years of experience providing aggressive state and federal audit representation for businesses and individual taxpayers, including more than a decade of public auditing experience. Whether an audit is being conducted by the IRS or one of California’s state agencies, such as the California Department of Tax and Fee Administration (CDTFA) or Franchise Tax Board (FTB), we are committed to protecting your rights and best interests, negotiating effectively with the government on your behalf, and minimizing the penalties you may be facing. In addition, we provide CDFTA, FTB, and IRS appeals and litigation representation to taxpayers who wish to dispute audit results. Contact us online today to arrange a reduced-rate consultation or call our appointment only San Francisco tax office at (415) 287-6568.
How Many Years Can You Be Audited?
There are several factors that determine the answer to this question, including the agency which is auditing you and why you are being audited. For example, the IRS typically has three years in which to conduct a federal tax audit, whereas state agencies like the FTB are granted an extra year, extending the statute of limitations for a California tax audit to four years.
Additionally, the statute of limitations can be further extended under certain circumstances. For instance, the statute of limitations increases from three years to six if the taxpayer has failed to report approximately 25% or more of his or her income. There are even situations where there is no applicable statute of limitations, meaning the IRS, FTB, CDTFA, or Employment Development Department (EDD) can audit the taxpayer at any time – even after years or decades have passed. This can occur if the taxpayer files a fraudulent return or fails to file outright.
State and Federal Tax Audit Triggers
There are numerous issues that can cause the IRS, EDD, FTB, or CDTFA to initiate an audit of an individual or business entity. To provide just a few examples, potential triggers for a California or IRS tax audit include the following:
- Failing to file state or federal income tax returns
- Failing to report income, including foreign income in offshore accounts
- Falsely padding tax deductions
- Filing a false tax return
- Improperly claiming tax credits for which the taxpayer is unqualified
- Underreporting income
- Using stolen personal information on tax returns (identity theft)
It is also important to keep in mind that the taxpayer’s conduct during the audit can negatively influence the course of the examination. For example, if the taxpayer makes contradictory statements during an examination, the auditor will probe further into both statements to determine the truth.
IRS and California Tax Audit Procedures
Before conducting an examination, the auditing agency will first notify the taxpayer. For example, the IRS may send the taxpayer a CP75 Notice, which is used when the IRS is auditing a federal income tax return and needs to verify information pertaining to the Earned Income Tax Credit (EITC). The FTB issues its own audit letter. According to the CDFTA, “Initial contact is usually by phone” rather than written notice. However, while phone calls are normal procedure for the CDTFA, the IRS does not ordinarily initiate audits via phone, which means you should be on high alert for a scam if you are contacted by the IRS via phone regarding an audit.
Once the taxpayer has received proper notice, the audit may begin. Depending on the agency and the nature of the tax issue, various types of audits may be conducted – some of which are more elaborate and time-consuming than others. For example, the IRS conducts three types of audits: mail-based correspondence audits, office audits that take place at IRS field offices, and, in the most complicated of situations, field audits. In a field audit, the auditor personally visits your residence or place of business to physically collect financial records and documents.
While this can be an extremely stressful experience, it is critically important not to panic and destroy or remove any documents that may be used in the audit, as the destruction or removal of records is one of numerous “badges of fraud” the IRS uses to recognize and develop tax fraud cases. If you have been notified that you have been chosen for an audit, the correct approach is to immediately contact an experienced San Francisco audit attorney, who can provide you with personalized guidance as to what steps you should take next.
Depending on the complexity of the issues under examination, an audit can take anywhere from a single day to multiple weeks, months or years to complete. The audit period can also be extended further if the taxpayer needs more time to obtain the requested documents. When the audit concludes, there are three potential outcomes:
- The audit verifies all of the taxpayer’s information. The taxpayer does not need to take any further action (No change audits are exceedingly rare).
- The auditor proposes additional tax, penalties and interest and the taxpayer agrees to pay – potentially through a payment plan or installment agreement, if necessary.
- The auditor proposes additional tax, penalties and interest but the taxpayer believes these findings are in fully or partially in error. In this situation, the taxpayer can request an appeal.
California and IRS Tax Audit Appeals Representation in San Francisco
If a taxpayer believes the IRS, EDD, FTB, or CDTFA has made an error in proposing additional tax, interest, and/or penalties, the taxpayer may dispute the proposed assessment by requesting an appeal with the appropriate agency. Federal tax appeals are overseen by the IRS Office of Appeals, while in California, the appeals process is now managed by a recently-created organization called the Office of Tax Appeals (OTA).
The right to appeal is not guaranteed. If (1) he or she meets eligibility criteria, and (2) the statute of limitations has not expired, the taxpayer may request an appeal by submitting specific materials to the appropriate agency, by the specified date on his or her audit notices. The IRS refers to this as a “written protest,” while the OTA calls it an “opening brief.” While the requirements for each vary slightly, in general your opening brief or written protest must contain:
- Your personal contact information
- Your statement describing the situation and why you feel an error has occurred
- Copies of the notices you received from the relevant tax agency
- Factual information or laws that support your position
San Francisco Tax Audit Defense Lawyers and CPAs
At the Tax Law Office of David W. Klasing, we understand how nerve-wracking and difficult it can be to deal with the IRS and other tax authorities. Our experienced San Francisco tax audit defense attorneys can handle correspondence and negotiations on your behalf, upholding your legal rights while seeking an efficient resolution that minimizes your penalties and financial losses. To set up a reduced-rate consultation, contact the Tax Law Office of David W. Klasing online, or call our appointment only San Francisco office at (415) 287-6568 today.