Receiving notice that your California state taxes are being audited can seem scary. Most people expect trouble when they're being audited or think that an audit decision is final. In most cases, you can appeal an audit decision if you disagree with the results.
A qualified California tax attorney can let you know what your rights are during a state tax audit, and what options you have if you want to dispute the audit decision.
Tax Audits in California
Three main tax agencies in California can conduct audits, including the California Department of Tax and Fee Administration (CDTFA), the Franchise Tax Board (FTB), and the Employment Development Department (EDD).
Why is a state tax agency auditing you?
Different tax agencies have various reasons for auditing your taxes.
- CDTFA: The CDTFA conducts sales and use tax audits to determine if you or your business reported your sales correctly, and if you charged sales tax on the sale of your property, services, or labor.
- FTB: The FTB uses audits to identify potential tax issues, gather information, and determine the correct tax amount for California taxpayers.
- EDD: The EDD might audit your California business if it appears that you're incorrectly categorizing workers or not paying proper employment taxes.
Appealing Tax Audit Decisions in California
The CDTFA, the FTB, and the EDD all have audits appeals processes that allow taxpayers to dispute the results of the audit. Keep in mind that when you want to appeal an audit, you must provide a reason why, with supporting documentation.
- CDTFA: If you disagree with the results of a CDTFA audit, you must notify the auditor who handled your case. The auditor will either adjust the results based on your documentation, request more information, or escalate to the audit supervisor. If you still disagree with the audit supervisor, the final step is meeting with a CDTFA representative.
- FTB: If the FTB suggests changes to your tax amount after conducting an audit, the agency will issue you a Notice of Proposed Assessment. To dispute it, you must submit a formal protest with a letter and documentation, either online or in writing. After an informal hearing, the FTB will issue a Notice of Action, which either affirms, revises, or withdraws their proposed assessment.
- EDD: Following an EDD audit, the agency may issue an assessment for either overpayment or underpayment. If you disagree with the results of the audit, you may petition for reassessment with an independent third party, the California Unemployment Insurance Appeals Board.
Need Help with California Audits and Appeals?
California taxation law is extensive. Dealing with either the CDTFA, the FTB, or the EDD can be lengthy and frustrating. If you want to appeal an audit decision from one of these agencies, it takes even longer.
Attempting to handle complex California state tax issues on your own may not land you with the favorable outcome you want. By working with an attorney who's experienced in California taxation and business law, you avoid the hassle of contacting state tax agencies yourself. Contact a California Tax Attorney today to set up a consultation and discuss your audit appeal options.