State Tax Audits

The California Franchise Tax Board (FTB) administers and enforces individual and corporate income tax rules in the state. It uses many procedures that are modeled after the IRS procedures in order to administer, examine, and collect taxes from California residents. It is easy for taxpayers to become frustrated by a state tax audit. The FTB has a variety of tools at its disposal to collect on accounts, and it may be more aggressive and more challenging to work with than the IRS. The Los Angeles state tax audit lawyers at the Ben-Cohen Law Firm can help you navigate this process.

In a state tax audit, the FTB identifies tax issues, gathers and evaluates your records and financial information, and proposes the tax amount under state law. The audit is supposed to follow all relevant tax laws and established legal interpretations and examine the relevant facts without bias. The audit may be performed as a desk audit or a field audit. The former is conducted through written correspondence and is usually only performed for audits that are limited to simple issues. A field audit may happen in your home, at your business place, or, if we represent you, at our office.

The results of the audit are provided in writing at the end of the process. The FTB will issue one of several different documents. For example, the document may be a No Change letter that states that your tax return is accepted as you filed it, and no further tax is owed. Or it may be a Notice of Proposed Assessment, stating that additional tax is owed. If you do not agree with the proposed adjustments, you may be able to appeal or file a protest, but this does not stop interest from accruing. A state tax audit attorney at our Los Angeles firm can help you evaluate whether you have grounds for one of these options.

If you disagree with the FTB's decision, you may file an appeal in writing within 30 days from the date that the FTB mails a Notice of Action letter. If you fail to appeal within that time frame, the FTB’s decision is final, and you must pay the amount demanded in the FTB's written demand for payment within 10 days. At an appeal, the FTB and the taxpayer have the opportunity to present further information to support their respective positions. The Board of Equalization will hold an oral hearing unless both the FTB and the taxpayer waive this. A decision made by the Board of Equalization binds the FTB but not the taxpayer. You may pay the tax, claim a refund, and still appeal in California Superior Court. A court decision may also be appealed.

If you do not have the income or assets necessary to pay your state tax liability, you may try to use the California State Tax Offer in Compromise program. This allows you to offer to pay a lesser sum in order to extinguish your tax liability. The FTB will approve an offer if the amount is as much as the FTB could expect to collect within a reasonable time frame, given your ability to pay, the amount of your assets, your income, the potential for a change in your circumstances, and whether the offer is in the state's best interest. Once an offer is accepted, all state lien claims are released.

Many people are nervous when they are faced with the prospect of a state tax audit. It may help to consult an experienced Los Angeles state tax audit attorney who understands how the process works, as well as the relevant laws and established legal interpretations that will be applied. Our principal, Mr. Ben-Cohen, is an experienced attorney who is a Board-Certified Taxation Law Specialist and a CPA. Call us at (310) 272-7600 or complete our online form to schedule your appointment. Our firm represents taxpayers throughout Los Angeles County, including in West Hollywood, Venice, Sherman Oaks, Pasadena, Burbank, Beverly Hills, Malibu, and Santa Monica. We also can assist people who need an IRS attorney to advocate for their rights in the federal tax system.