The Franchise Tax Board (FTB) audits the tax returns of individuals and businesses for accuracy and completeness. If you receive an FTB audit notice, you should not ignore it. Even if you disagree or are confused about what it means, you will still owe interest on any overdue taxes. If you fail to respond, the decision becomes final, and you could face penalties and late fees.
When you receive an FTB audit notice, contact San Francisco FTB Audit Lawyer Allison Soares right away. Every minute you wait means greater interest owed and less time to appeal the assessment.
What Is FTB?
The FTB is responsible for interpreting, administering, and enforcing California’s income tax laws. California has other agencies that administer state payroll and sales taxes: The Employment Development Department (EDD) and the California Department of Tax and Fee Administration (CDTFA).
When a tax agency contacts you, how you respond depends on whether you are dealing with collections or audits. The collections side of the agency seeks to collect the amount you have been assessed, and you cannot appeal. On the other hand, an audit means the agency is reviewing and assessing the amount of tax you owe. You have the right to receive a notice of the decision and have the option to appeal.
The FTB Audit Process
In an audit, FTB will verify that you submitted complete and accurate information and assessed the correct amount of tax. FTB must follow the audit process prescribed by the California Revenue and Taxation Code (RTC). If FTB audits your return, you will receive a written notice of the audit. The notice will explain what tax year the FTB is reviewing and the issues it is looking into. It may ask for additional information to help the FTB understand and verify the items in your return. You’ll have a chance to respond before the Board issues a Notice of Proposed Assessment (NPA), which will explain the decision. If you disagree, you must request an appeal by the enclosed due date, usually within 60 days. Your request must be in writing, and explain your reasons for protesting. If you do not appeal within 60 days, the assessment becomes final, and you have 15 days to pay the deficiency. Once it receives your appeal, the FTB has 120 days to reconsider its assessment, including scheduling a hearing with the Office of Tax Appeals (OTA). When you receive notice of its decision on your appeal, you have 30 days to request a rehearing. Until the appeal is decided, you continue to owe interest on the deficiency.
When Does FTB Audit?
FTB is in charge of determining each taxpayer’s proper tax liability and confirming the accuracy of the return. In executing these duties, the FTB can select personal and business tax returns for an audit for multiple reasons. Common issues that trigger an audit include:
- Incomplete or missing information;
- Math errors;
- Late filing;
- Misreported income, especially when inconsistent with W-2 and 1099 information;
- Excessive deductions;
- Suspected underreporting of income compared to similarly licensed professionals or property owners;
- Differences between the taxpayer’s California and federal tax returns;
- Referrals from other California tax agencies (EDD, CDTFA), California Bureau of Investigation, or FTB’s Criminal Investigation Bureau; and
- Information from an IRS audit.
Unlike IRS audits, FTB audits tend to have a unifying theme. FTB often chooses taxpayers for audits based on its investigation of a particular type of transaction. For example, it recently audited taxpayers who performed 1031 like-kind exchanges, disclosed capital gains and losses, or reported losses from flow-through companies (S-corporations, partnerships, and LLCs). FTB has also performed audits to check for California residency.
FTB Audit Time Limitations
Generally, FTB has four years from the date you filed your tax return to issue an audit and assessment. The four-year clock runs from your filing date, whether you file on or before the due date. If you don’t file, FTB can audit you at any time and assess a minimum $15,000 tax debt. Additionally, if FTB suspects a false or fraudulent return, it can issue an audit regardless of how long ago you filed.
How Can an FTB Audit Attorney Help?
FTB regulations and California tax law are complex and challenging for the ordinary taxpayer to understand. Along with the tight deadlines, it’s easy to make a mistake and risk owing thousands in deficient taxes. Fortunately, you don’t have to face an FTB audit alone. Attorney Allison Soares has an MBA іn accounting with a specialization in fоrеnѕіс accounting and an MLL in taxation. She tеасhes a соurѕе оn tаx prосеdurеѕ, prасtісе, аnd ethics at the Chаrlеѕ W. Lаmdеn School оf Accountancy at Sаn Diego Stаtе Unіvеrѕіtу. You can trust her experience and expertise to manage the FTB audit process so it is straightforward and worry-free.
Ms. Soares offers a free initial phone consultation, where she will explain your options. Every client receives a thoughtful case review and our honest opinion. You might think you can handle the situation on your own, but some audits require professional assistance.
Our lawyer Allison Soares also practices the following legal areas:
- EDD audits, appeals, and collections
- IRS tax matters and audits
- CDTFA audits
- Business law (business advisory services)
- Business formation
- Corporate law
- And other business tax matters in California
When you hire an attorney over other tax specialists, you get three important benefits.
- Your attorney has an ethical duty to act in your best interest.
- Working with an attorney gives you attorney-client privilege. Conversely, your accountant or tax preparer is not required to keep your information private and could someday testify against you in criminal proceedings.
- You might encounter a conflict of interest if you need your accountant or tax preparer to represent you in front of FTB or OTA.
Ms. Soares will personally handle your case and address your concerns, unlike tax attorneys at larger national firms. Her open and friendly demeanor has helped hundreds of clients defuse stressful situations and obtain positive results. With Allison Soares, you can expect personal service and aggressive representation. We advocate for our clients and go above and beyond to fight for them. We are knowledgeable in FTB audits, procedures, and deadlines and can represent you in any tax court hearing or appeal. We know the law and will keep pursuing your case as long as it takes to get a fair result. Contact us today.