The accountant-client privilege for CPAs is far more limited and often doesn’t apply in California state tax matters or criminal investigations. While both are valuable, CPAs and tax attorneys serve different roles in an FTB matter. You need an attorney who can explain complex tax issues clearly and with whom you feel comfortable discussing sensitive financial information. The FTB has unique procedures and tactics, so you need an attorney with a successful track record in FTB audits, collections, and appeals. If you’re facing liens, levies, or asset seizure, you are in crisis mode and time is critical.
A quick guide to disputing California tax assessments
However, starting at the same time, the FTB has dealt with increased alternative apportionment petitions following a voter-approved mandatory shift to single sales factor apportionment in 2013. The Board also committed to taking proactive measures with technical reviewers to have auditors and FTB attorneys collaborate more closely. In 2015—after testimony by the California Taxpayers Association (CalTax) at the FTB’s 2014 annual Taxpayers’ Bill of Rights hearing—the Board signaled its focus on cases in the Audit Division and Legal Division that were more than 36 months old. The largest backlog involved 2,763 open audits, followed by 574 open refund claims and 273 open docketed protests.
Court-ordered debt (COD) Collections for California courts
Consult with a translator for official business. Suppose you have concerns or questions about an FTB, IRS notice, or any other tax issue. Unlike the IRS, California does not provide a first-time penalty abatement, and penalty protests are based on “reasonable cause.” Instead, the FTB uses IRS tax audit results and creates a California assessment using shared information.
FTB and IRS audits are conducted in a very similar way. Denying an extension of time request can actually raise suspicion or trigger assumptions even if there isn’t any suspicious activity occurring. If FTB requests an audit extension, agreeing to the requested extension looks better and gives them less reason to think there is fraudulent or suspicious activity. Notifying FTB within the six-month window of an IRS audit closure ensures you don’t waive any potential rights you have to petition or fight that assessment.
An Essential Guide on the Franchise Tax Board for Businesses and Individuals
Alternatively, if you are willing to pay the tax first, you could proceed to the U.S. Tax Court, where you can contest the taxes before paying before a judge who decides only tax cases. But barring those kinds of exceptions, the IRS usually has three years once you file a return to audit. California adopts some federal rules but not others, so its tax law has many nuances that do not track federal tax law.
If you amend your IRS tax return, California law requires you to amend your California return within six months if the change increases the amount of tax due. This coattails concept in California law applies to amended tax returns as well. But regardless of whether California gets notice of the adjustment from the IRS, California taxpayers must notify the FTB and pay up. But if you live or do business in California, state taxes are a big piece of what you pay. Use Schedule CA (540) to adjust federal adjusted gross income and federal itemized deductions using California law.
- The protest must include the amounts and years protested, a statement of facts, an explanation of why the taxpayer believes the FTB is wrong, and evidence and documentation to substantiate the taxpayer’s position.
- It has a broad mandate with three primary functions that can directly impact your life or business.
- Individuals and businesses with their principal residence, or principal place of business, in Los Angeles County during the fires that began January 7, 2025, qualified for a postponement to file and pay taxes until October 15, 2025.
- Today, they have modernized their processes by using advanced technologies like online fillings and electronic payments.
- For decades, it had the State Board of Equalization (SBE), a five-member administrative body—the only elected tax commission in the U.S.—that functioned much like a court.
- A public report would empower taxpayers and voters to provide valuable input to the FTB and state legislators to ensure all parties have the knowledge and resources needed to make taxes less burdensome for everyone.
You’ll pay an upfront deposit, often from $5,000 to $25,000 or more, against which the attorney bills their hourly time. Legal fees in California reflect the state’s complex tax laws and the high stakes of FTB disputes. An attorney familiar with California’s specific tax laws and the FTB’s regional operations can provide a significant advantage. Significant tax debt that threatens your business or lifestyle also requires professional help. The FTB generally has 20 years to collect unpaid taxes, but this period can be extended. Innocent spouse relief may be available if your spouse understated tax on a joint return, but these applications are complex.
Form 568
Delaying or avoiding a state tax lien may be possible if an acceptable short-term repayment is negotiated and the balance is paid to a specific tougher than irs california franchise tax board amount. Dealing with tax garnishment is the first step in our representation. Additionally, a taxpayer may simultaneously be subject to both IRS and FTB garnishments. Within the California garnishment framework, child support payments get priority over tax garnishments.
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The California Franchise Tax Board issued guidance about the newly enacted elective pass-through entity tax effective January 1, 2021, to January 1, 2026. If your business entity is an LLC, you have a certain degree of control over how the state recognizes your business. Partnerships have the same minimum tax as LLCs in California, but they are not subject to the LLC gross receipts fee. However, the gross receipts fee will not be assessed on the same receipts at multiple tiers (i.e., double taxation). The California individual tax burden per capita was ranked fifth highest among state jurisdictions based on fiscal year data for 2016. High-wealth individuals in California have the highest progressive tax rate in the country, just higher than New York City residents who are taxed at the New York state and city levels.
If no petition for rehearing is filed, the OTA’s decision becomes final in 30 days. After the OTA considers the law and facts, it issues a written decision. Taxpayers may request an oral hearing before the OTA to present witnesses and testimony.
How to Prepare for an FTB Audit
Many FTB tax audits are not indeed taxed audits at all. However, the taxpayer will only have four years from the due date or one year from the payment (whichever comes later) to get a refund for any overpayment. The California income-tax penalty list includes the draconian failure-to-furnish-information punishment. Persons with reported mortgage payments are thought to have made three to five times the mortgage payments. For instance, residents with business or professional licenses (medical, legal, real estate, etc.) are presumed to have earned a specific income level even if they did not work. California casts a much wider net in determining who owes taxes, thus making creative assumptions for the proposed assessment.
- Your first taxable year is not subject to the minimum franchise tax.
- The Employment Development Department (EDD) manages payroll taxes, including unemployment insurance, state disability insurance, and income tax withholding.
- In December 2018, California released a notice that would have set the economic nexus for sales tax at $100,000 in gross receipts in the state or 200 transactions in the state.
- Get real-time confirmation and the fastest refund possible.
- Suppose you have concerns or questions about an FTB, IRS notice, or any other tax issue.
California’s community property laws complicate tax issues for married couples. Installment agreements are another solution for paying over time. This allows you to settle for less than you owe, but the FTB’s review is rigorous, examining your ability to pay, income, expenses, and assets. For those who cannot pay their full tax debt, an Offer in Compromise (OIC) may be an option. You generally have 30 days from the NOA date to file this appeal and present your case to an administrative law judge. The FTB is relentless when collecting taxes, and ignoring their communications will only make the problem worse.
The Top 500 Delinquent Taxpayers list is one of the FTB’s most powerful weapons. Suspected fraud can lead to criminal charges, fines, and jail time. We have seen clients face tax liens that destroy credit scores and bank levies that empty checking accounts overnight. If the FTB determines you owe more tax, it will issue a Notice of Proposed Assessment (NPA). The FTB has specific focus areas for their theme-based audits, particularly flow-through entity losses from S-corporations, partnerships, and LLCs. The FTB also compares reported income to your apparent lifestyle.
When it comes to taxes, most people think about the IRS. Unbeknownst to Maria, David was running a side business and not reporting the cash income. He decided to move to Nevada (a no-income-tax state) to save money but kept his California driver’s license, his San Francisco apartment “just in case,” and his doctor in California.
We calculate the penalty on the unpaid amount from the due date of the estimated tax installment to the date we receive your payment or to the due date of the return, whichever is earlier. Corporation B makes an $800 estimated tax payment on April 15, 2013 (first installment due date). Corporation A makes an $800 estimated tax payment on April 15, 2013 (first installment due date). It did not make an estimated tax payment on April 15, 2012 (first installment due date). Your estimated tax payments are based on the corporation’s estimated tax liability after credits for its first taxable year.
What IRS Audits Will Look Like in 2026: Key Risks for Real Estate Owners and Business Leaders
Pursuant to § 21010, the FTB established a maximum of 24 months in which to evaluate the merits of a protest or refund claim, conduct a hearing if requested by the taxpayer, and issue a Notice of Action. Visit our Forms and Publications search tool for a list of tax forms, instructions, and publications, and their available formats. The web pages currently in English on the FTB website are the official and accurate source for tax information and services we provide.