Introduction
Navigating audits by the California Department of Tax and Fee Administration (CDTFA) and the California Franchise Tax Board (FTB) is a vital aspect of tax compliance for individuals and businesses in California. In this article, we will explore the audit processes of both agencies and provide insights into how to manage these audits effectively.
California Department of Tax and Fee Administration (CDTFA) Audit
Understanding CDTFA Audits: CDTFA conducts audits to ensure businesses are complying with state tax laws, including sales and use tax, fuel tax, and other fees and assessments.
Audit Selection: Businesses may be selected for CDTFA audits through random selection, industry-specific criteria, or as a result of reported discrepancies in tax filings.
Audit Process: When selected for a CDTFA audit, businesses are contacted by an auditor who will request financial records, invoices, and other documents related to their tax liability.
Professional Representation: Businesses often seek professional representation, such as a Certified Public Accountant (CPA) or tax attorney, to assist them during CDTFA audits. This can help ensure a smoother audit process.
Audit Outcomes: The outcome of a CDTFA audit can vary. It may result in no changes to the tax liability, a tax deficiency (additional taxes owed), or, in some cases, a refund if the audit reveals overpayments.
California Franchise Tax Board (FTB) Audit
FTB Audit Overview: The California Franchise Tax Board conducts audits to verify income tax compliance by individuals, corporations, partnerships, and other entities.
Audit Selection: Similar to CDTFA, the FTB selects taxpayers for audits through various methods, including random selection and the identification of potential discrepancies in tax returns.
Audit Process: FTB auditors will typically request financial records, tax returns, and supporting documentation to verify the accuracy of reported income and deductions.
Professional Representation: Taxpayers undergoing FTB audits may choose to have a tax professional represent them during the audit process to ensure their rights are protected and tax matters are addressed correctly.
Audit Outcomes: Outcomes of FTB audits can include no changes to the tax return, additional tax liability, or adjustments to tax credits, deductions, or exemptions.
Managing CDTFA and FTB Audits
Prompt Response: Respond to audit notifications promptly and provide requested documentation in a timely manner.
Professional Assistance: Consider seeking professional representation to navigate the audit process effectively and ensure compliance.
Record Keeping: Maintain meticulous records of financial transactions and tax-related documents to support your tax filings.
Appeals Process: Be aware of your rights to appeal audit findings and decisions. The appeals process allows for a formal review of audit results.
Conclusion
Facing audits by the California Department of Tax and Fee Administration (CDTFA) or the California Franchise Tax Board audits (FTB) can be a challenging experience. However, by understanding the audit processes, seeking professional guidance when necessary, and maintaining accurate records, individuals and businesses can successfully navigate these audits and ensure compliance with California’s tax laws.