Having to deal with taxing authorities is never fun but navigating an issue with California’s Franchise Tax Board (FTB) is particularly difficult. The FTB has a reputation for aggressive pursuit of tax debt that rivals the Internal Revenue Service (IRS). Taxpayers who need to navigate the agency’s aggressive tactics find the process complicated by the fact that California legislatures have chosen a unique set of tax laws — voting in laws for state taxes that are specific to California and not always in line with federal regulations. This is different from most states that simply adopt federal rules.
Some hurdles put up by the FTB that are particularly difficult for taxpayers to navigate include:
- Statute of limitations. California officials generally have four years to conduct an audit after the taxpayer files their returns. This is a full year longer than the IRS’ three-year limitation.
- Extension to the statute. There are various events that can trigger an extension to the four year deadline noted above. Two examples that lead to an unlimited extension include allegations the taxpayer filed false or fraudulent returns or a failure to notify the FTB if there is a change to in a tax bill with the IRS.
- Notification after a change to federal taxes. California law also requires the taxpayer provide the state with notification within six months of a change to federal tax filings that results in an increase in the taxpayer’s bill. Without this notice, the state’s statute of limitation does not expire.
These rules can allow the FTB to extend its ability to conduct an audit indefinitely.
What happens after the FTB conducts an audit?
If the FTB determines there is an issue, they will send the taxpayer a notice upon completion of the audit. This notice will include information about any additional tax owed as well as added on penalties and interest. The notice will include a protest date. Taxpayers who wish to dispute the FTB’s findings must act by that date. Without action, the FTB will expect payment by the listed date. A failure to do so can mean the taxpayer looses possible legal recourse and also faces even more penalties and fees.
The FTB generally sets the protest date at 60 days.
What if I disagree with the FTB’s findings?
The process depends on whether the protest involves an individual’s tax filings or a the filings for a business. An individual can move forward with an in-person, online, or written protest. The in-person protest involves a hearing held at the Town Center in Valley Quail or Desert Tortoise. A taxpayer completes an online protest through the FTB’s website. The taxpayer must mail a written protest by the protest date and include their contact information, amount and tax years in question, statement of facts and arguments. The taxpayer can also provide additional documentation to support their claims.
The FTB requires a representative of the business provide an email address. At that time, they will send the forms to guide a protest attempt.
It is important to note that interest accrues during the protest period.
Is there anything else I should know before protesting the results of an FTB audit?
The FTB allows for those going through this process to bring in legal counsel to help advocate for their interests. You do not have to go through this process alone.