1. What are the different California tax agencies?
Unlike most states, California has three separate taxing agencies:
- Franchise Tax Board (FTB) for state income taxes,
- Employment Development Department (EDD) for state payroll taxes, and
- California Department of Tax and Fee Administration (CDTFA) formerly the State Board of Equalization (SBOE) for state sales taxes.
Please remember that in addition to the IRS, each agency has its own rules, regulation and filing requirements.
2. I was working with a government agent; why was my bank account levied?
Tax agents are overworked and have a large number of cases. If you are working with a Collections Agent in the IRS, FTB, EDD or CDTFA your account should not be levied and involuntary collections will not occur if you are current on your filing and payments, are making good-faith payments, are responsive to the agent and you meet the agreed-upon timelines. Recently, state agencies have been assessing taxpayers when they do not respond to an assessment or audit notice. Sometimes taxpayers overlook the notices and unfortunately, the state agency automatically assesses the client. The assessment is then sent to the Collections department. Depending on the state agency, a notice may be sent and if the taxpayer does not respond in a specified period of time, the taxpayers’ bank accounts may be levied.
3. Why should I hire a tax attorney?
Unfortunately, most taxpayers do not seek out a lawyer until they have an issue with a government agency. Unlike larger national firms, Ms. Soares will be handling your matter and responding directly to your questions and concerns. We understand each taxing agency’s rules and requirements. We understand the law and are able to take your controversy as far as necessary to obtain a successful result. Some national firms only write letters or delay collections. We will review your case and give you honest advice. Since we are lawyers, we have the ability to take your tax controversy case to Tax Court if necessary.
4. If I hire a lawyer to help with my tax issue will the government agency think that I am guilty?
This is a very common question that clients ask. The short answer is no. You have the right to representation. The government agent understands that you are busy with your own business and that it is more efficient for you to focus your time and energy running your business. In our experience, the government agent actually likes that an experienced person is working with them because in most cases we do their work for them. We know the format, the questions and the documentation that the agent will request. We review your information and provide it to the government agent in an organized fashion which saves the government agent’s time and energy.
5. Why should I hire a tax attorney instead of using my accountant or tax preparer?
There are many reasons to hire an attorney:
- As lawyers, we have an ethical duty to always act in your best interest,
- When you hire an attorney, you have an attorney-client privilege. There is no client confidentiality between you and your accountant or tax preparer. When you hire a lawyer, you are allowed to freely communicate with your lawyer. If you face any criminal charges, your tax preparer or accountant will not provide this same protection. In most cases, he or she will be compelled to testify against you.
- In some cases, taxpayers may consider using their accountant or tax preparer to represent them in front of a government agency. Depending on the facts of the case, there may be a conflict of interest between the tax preparer and the client.
6. Why should I hire you?
As our reviews and testimonials point out, we will provide you with honest, cost-effective advice. We do not have large administrative and overhead costs, yet we are able to go above and beyond to timely respond to all of your questions with efficiency. We offer an initial free 30-minute phone consultation and give you straightforward advice and let you know if you can handle your situation by yourself or whether it is something that may need a professional. We are advocates for our clients and always go the extra mile to fight for them.
7. What entity should I choose? What is the difference between an LLC and an S Corporation?
Every business is different. Most tax and legal issues occur from failing to plan and consider the tax and liability associated with their business. We help our clients make informed decisions about what entity to select and why. We enjoy educating our clients as to the benefits and the burdens of each entity. If a client follows the rules and requirements of the laws, they will obtain the benefits of the laws.
8. What is the difference between assessment and collections?
The IRS and all three California state taxing agencies have two different departments: assessment and collections. It is extremely important to understand which department is handling your current tax issues because there could be consequences if you do not respond accordingly.
The Assessment side handles your account when you file a tax return or if your account is audited. You will be working with an agent to provide substantiation to support your filed return (or substitute return). In some cases, you will return to the assessment side or auditor when you want to attempt to reduce the assessed amount.
The Collection side is only about collecting the money that is due on your account based upon the assessed amount. It is only based upon your current ability to pay the assessment. The Collections department does not care why you were audited. They only want to collect the amount owed.
9. What is an Offer in Compromise and do I qualify?
An OIC is handled in the Collections Department of the government agency and it allows a taxpayer to settle their IRS debt for less than they owe.
Every taxpayer with a tax liability wants to settle with IRS, but the reality is the ability to settle essentially boils down to a math formula. Only taxpayers with financial hardship will be successful.
10. Can I abate the penalties and interest on the tax that I owe?
If a taxpayer does not qualify for an OIC, penalty abatement is a great way to reduce the liability. The IRS will continue to attempt collection of the tax you owe, but it may be willing to waive or reduce the penalty charges if you can show you have a good reason. Penalty abatements have a low risk, with a high level of reward and no financial analysis required.
Unfortunately, you can never abate and reduce the interest amount. However, the interest amount is calculated based upon the tax and penalties due, therefore if you reduce the tax or the penalties amount, you will be reducing the interest due.
11. After my audit, can you help me avoid future audits?
Yes, many taxpayers just do not understand the laws and requirements. We are happy to help review your annual tax return with you to avoid similar issues. We like to be a resource to our clients and to help with future issues. We assist clients with forming entities and strategizing with them as to the future.
12. Why did I receive an audit?
The EDD conducts different audits to ensure that employers are functioning correctly according to state laws and the tax code. In some cases, the EDD conducts verification audits that are done at random and do not insinuate any inappropriate action. In other cases, you may face a request audit, which is a more serious audit and generally instigated by a party that provides the EDD with information about you or your company.
13. I’ve received notice that I’m being audited. What’s the first step?
Once you’ve contacted a lawyer, start getting your records and other relevant documents in order. Having these documents organized will be a major help in your defense. The more documentation you are able to present in your defense, the easier it will be to get you through the audit process successfully.
14. What kind of records might be requested from me?
The most common records that the EDD requests from employers during an audit are general employment questionnaires, payroll registers, general lender registers, wage information for particular time frames, and employee registers. After these documents are requested, the actual audit begins and the EDD may request other additional documents.
15. What are the penalties associated with EDD audits?
Depending on the reason for your EDD audit, you could be liable to face a wide range of fines that can cause you a considerable amount of financial strain. These sorts of fines include a percentage of unpaid taxes, set dollar amounts for each case of unreported employees or independent contractors, and much more.
16. What happens if I don’t agree with the proposed assessment from the EDD?
If you don’t agree with the proposed assessment the EDD gives you after their audit is complete, you can appeal the assessment with the California Unemployment Insurance Appeals Board.