If you’re a California resident or taxpayer, you’ve likely owed money to the Franchise Tax Board (FTB) at some point in your life. The job of the FTB is to administer the California Revenue and Taxation Code. Essentially, the FTB collects the tax money you owe to the state of California. The FTB also conducts audits to determine if a business or individual has filed their income tax return correctly.
Many California taxpayers ask how this office conducts audits. The FTB follows three steps. First, they identify potential tax issues. Second, they gather, evaluate, and document information. Third, they determine the correct tax amount owed and any penalties and interest.
When you submit your tax return, the FTB decides if the return should stand as is, or an audit should be opened to further investigate the return. The FTB typically reviews the following criteria to determine if an audit will take place:
- Federal and state tax returns
- Prior audit history
- Income exclusions and deductions
- Public information
- Internal Revenue Service data
If the FTB selects you for an audit, you will receive a letter that explains why you were chosen and identifies the issues for which the audit is taking place. The letter also includes the name and contact information of your auditor and will ask you for the name and contact information for the individual that prepared your tax returns.
Once the audit process is complete and if the FTB determines that you do, in fact, owe taxes, you will receive a Notice of Proposed Assessment. The notice will explain what you owe and the interest that’s accrued on the taxes. If you pay the balance due within 15 days of the notice, no additional interest will be assessed. However, this does not mean that you cannot protest the audit and assessment.
Taxpayers have the right to protest, or appeal, the assessment online through MyFTB. You can also submit a written letter of protest. Your appeal must state why you are protesting and must be submitted by the “protest by” date included in your Notice of Proposed Assessment. The letter must also include your name and address, social security number or taxpayer-identification number, the amount and years you are protesting, an explanation of why you believe the FTB’s assessment is incorrect supported by documentation to that effect, a copy of the original Notice, and other pertinent contact information.
Once the FTB receives your protest letter, they will review it and make a final decision. You will then receive a Notice of Action (NOA) that documents what the FTB determined, whether to affirm, revise or withdraw the assessment.
California can be very aggressive when it comes to collecting owed money and the process is confusing for many. To avoid their collection strategies, it is important to work with an experienced tax attorney. Don’t try to navigate the FTB on your own as it may cost you more money in the long run.
Allison Soares is a partner and tax attorney at Vanst Law. It doesn’t matter the issue: audits, collections, appeals, international disclosures, grumpy people— Allison enjoys fixing problems. In addition to her legal work, she has worked in accounting and utilizes that knowledge to her advantage while handling cases involving EDD audits.
