When it comes to taxes, most people think of the IRS. But if you live or do business in California, state taxes are a big part of what you pay. California does a good job of actively attracting people to high tax deductions for individuals (13.3%) and businesses (8.84%). Adding the state’s infamous aggressive enforcement and gathering activities, it’s a perfect storm. State taxation is also complex. Instead of adopting federal tax wholesale as many states do, California lawmakers choose. California has adopted some federal regulations, but not others. As a result, California tax law has many nuances that do not track federal tax law. Even California tax agencies and tax dispute resolution systems are rare. Coupled with its own aging, the situation can be truly horrifying.
Take a long tax audit period in California. The basic IRS statute is 3 years. In some cases, the IRS will be 6 years instead of 3 years. However, with the exception of these types, the IRS typically has three years after submitting a return to audit. The California Franchise Tax Commission manages California income tax. FTB takes an extra year, so it’s four years instead of three. It sounds simple, it takes an extra year, but it’s not that fast. Let’s say you’re involved in an IRS audit, but the IRS hasn’t issued a defect notice yet (also known as a 90-day letter and must be sent by certified mail). You may want to take a step back in the IRS audit to try to put you out of California’s four-year range. Hey, you might think that you might be able to surpass California’s four-year statute with a little delay. Does it protect you in line with California’s “I too” money demands?
Unfortunately, no matter how long your IRS conflict lasts, California everytime Piggy back and collect that share. Some things can give the FTB unlimited time. California, like the IRS, has unlimited time to come after you if you don’t file an income tax return. The same is true for false or fraudulent returns. They are obvious, but there are other dangers as well. In some other non-intuitive cases, California gets unlimited time to audit. Suppose an IRS audit changes your tax obligations. Perhaps you lost the IRS proceedings or agreed to the IRS during the audit and agreed to have a few more dollars in debt. All you have to do is sign the form and send it back to the IRS. In that case, you are obliged to notify the California FTB within 6 months.California statute of limitations if you do not notify the FTB of changes to the IRS for your tax obligations I never have It will be executed. This means that you may be charged taxes after 10 years or more.
Yes, it happens. California FTBs often come shortly after the IRS to claim some of their flaws. However, regardless of whether California receives an adjustment notice from the IRS, California taxpayers must notify the FTB and make payments. If you forget, they usually find you at some point. This Coattail concept in California law also applies to amended tax returns. California law to amend the IRS tax return necessary If your changes increase your tax payments, you will need to revise your California tax return within six months. Otherwise, California’s statute of limitations will not expire.
Do I need to voluntarily give the FTB time to audit using all these rules? To my surprise, yes. Again, the basic rule is that the FTB must examine your tax return within four years of your submission. But like the IRS, the FTB sometimes contacts you and asks for more time. The FTB may submit a form requesting a signature to extend the time limit. This part of the California system works much like the corresponding part of the federal government. Some taxpayers simply say no to an extension that allows the government to allow more time to audit, like giving a thief more time to rob your home. However, in the IRS or FTB, saying “no” usually triggers the assessment based on generally unfavorable assumptions. Therefore, you usually need to agree to the extension. Extensions may be limited to specific tax issues or additional time.
What about California audits and tax disputes? On average, they tend to be more difficult to resolve than those of the IRS. There are also a lot of taxes. California has income tax, franchise tax, sales tax, usage tax, property tax and excise tax. There are nexus issues, tax withholding, and strict residence rules. If you have an IRS dispute, you can administratively dispute it with the Auditor at the IRS Internal Revenue Service. You can go to the US Tax Court if you want. There you can dispute taxes before paying in front of a judge who decides only tax cases. Alternatively, if you are willing to pay taxes first, you can proceed to the US Federal Claims Court or the US District Court. Many states have state tax courts, but California does not. For decades, the State Board of Equalization (SBE), the only elected tax committee in the United States, a five-member executive branch, acted like a court.
It was an eccentric and controversial system. But when California State Legislature enacted the 2017 Taxpayer Transparency and Fairness Act and created the California Tax Appeals Authority (OTA), it all changed in 2017. The OTA has jurisdiction over tax-related appeals managed by the California Department of Taxation (CDTFA) and the Franchise Tax Board (FTB). This includes personal income tax, corporate franchise tax, sales tax, usage tax, LLC taxes and fees, as well as gasoline and other sales taxes.
However, you will have to do business with either the CDTFA or FTB California tax authorities before you reach the OTA. Both have an audit process and a management process that allows taxpayers to resolve the differences between proper tax assessment and imposition of penalties. If your audit is done by a franchise tax committee on your income tax, the process is not much different from the federal government. The auditor will eventually write down what he or she is thinking and will probably suggest some additional taxes.
If you do not agree, you will need to contact the FTB to carry out the FTB filing process. However, compared to the IRS Internal Revenue Service, the FTB’s appeal process does not seem to resolve too many cases, so you may have to go to the OTA. The FTB also has programs that enable settlements, compromises and payment plans. But, again, these usually don’t work as well as the IRS counterparts. If the dispute continues after the CDTFA or FTB makes the final tax decision, you can appeal to the Tax Appeals Department. OTA is an independent office separate from the state tax authorities. OTA is dedicated to arbitrating tax disputes in California. Appeals to the OTA provide taxpayers with the last opportunity to administratively resolve tax disputes with state tax authorities without having to go to court.
The appeal can be filed with a written request to the OTA and a supplementary document. You can request an oral hearing, but this is usually a good idea. You can also bring a witness who can testify before the OTA. Prior to the hearing, taxpayers must submit all relevant documents to the OTA and can request or request attendance at the pre-hearing meeting. Each tax appeal is heard by a committee of three Administrative Law Judges (ALJs), each with extensive experience in tax law.
One ALJ is designated as the lead ALJ for hearing purposes, but all panel members participate equally in hearings, deliberations, and decisions. Generally, the ALJ Panel will make a written decision within 100 days of hearing, along with information on additional steps that may be taken if the taxpayer disagrees with the OTA’s decision.
If you disagree …