California Tax Audit Dilemmas

The Franchise Tax Board (FTB), which is responsible for enforcing California Income Tax laws, is not California residents’ and businesses’ best friend. This is especially true with the individual tax rate at 13.3 percent and business rate at 8.84 percent. Furthermore, California’s vigorous enforcement and collection policies, plus our state’s uncompromising tax statute of limitations, can make it burdensome for many California taxpayers.
So, let us take a look at some facts concerning California tax policies.
1) In most cases the federal income tax statute of limitations is three years (six years in some situations). The statute in California is four years. This allows the FTB an additional year to see if something happens with the IRS. If the IRS conducts an audit and you owe extra taxes and penalties, count on being contacted by the FTB and being hit with an additional tax bill.
2) Like federal law, California law extends its statutes of limitation indefinitely should the taxpayer fail to file or submit a fraudulent tax return. Above that, California residents must notify the FTB within six months of an IRS Notice of Determination that requires the taxpayer to pay any additional federal taxes regardless whether the California four-year statute has passed. Failure to inform the FTB in time indefinitely suspends the statute of limitations for a California tax audit. As a result, the FTB can audit negligent taxpayers as far back as they wish independently of an IRS audit.
There are other areas some California taxpayers need to be aware of, such as what happens when a taxpayer moves in or out of the state. Also, California laws differ on net operating business losses, which can result in some businesses having to pay additional state taxes.
Our Suggestions:
1. Be aware of California tax laws
2. Have a tax professional provide you state tax planning advice
3. If you are to be audited by the FTB, work with a state audit-experienced tax professional
If you have any questions concerning California tax laws, we welcome you to contact our office.
Professional Tax Services is a locally-owned provider serving over 3,500 local residents and businesses. For more information call 661-259-1967 or visit www.scvprotaxservices.com. Through their complimentary EZ2 Thrive program, they provide unlimited free tax planning advice to their clients.