Introduction

Tax audits can be a daunting prospect for individuals and businesses alike. Two common agencies that conduct audits in California are the California Department of Tax and Fee Administration (CDTFA) and the Franchise Tax Board (FTB). Understanding what these audits entail and how to navigate them is crucial for anyone who may come under their scrutiny. In this article, we will explore the basics of CDTFA and FTB audits, shedding light on what they are and what to expect if you find yourself facing one.

What is CDTFA?

The California Department of Tax and Fee Administration (CDTFA) is responsible for administering California's sales and use tax, as well as a variety of other taxes and fees. The agency's primary goal is to ensure that individuals and businesses comply with California's tax laws. To achieve this, CDTFA conducts audits to review financial records and verify that taxpayers are accurately reporting and paying the taxes and fees they owe.

CDTFA audits typically focus on the following areas:

Sales and Use Tax: CDTFA audits businesses to confirm that they are collecting and remitting the appropriate amount of sales and use tax on taxable transactions.

Special Taxes and Fees: The agency also audits businesses subject to various special taxes and fees, such as cigarette and tobacco taxes, fuel taxes, and cannabis taxes.

Compliance Reviews: CDTFA may perform compliance reviews to ensure that businesses are meeting their tax obligations correctly.

What is FTB?

The Franchise Tax Board (FTB) is responsible for administering California's income tax laws for individuals and businesses. FTB audits are conducted to verify that taxpayers have accurately reported their income, deductions, and credits and have paid the correct amount of income tax.

FTB audits can cover a range of tax issues, including:

Personal Income Tax: FTB audits individual taxpayers to review their personal income tax returns and related documentation.

Business Income Tax: For businesses, FTB audits focus on corporate income tax returns and partnerships.

Employment Tax: The FTB also reviews payroll tax compliance, ensuring that businesses correctly withhold and remit payroll taxes.

What to Expect During a CDTFA or FTB Audit

Facing a CDTFA or FTB audit can be a stressful experience, but knowing what to expect can help alleviate some of the anxiety. Here are some key points to keep in mind:

Notification: You will receive a written notification informing you of the audit and providing details about what records are needed and the audit's scope.

Cooperation: It is crucial to cooperate with the auditor, provide requested documentation, and respond to inquiries promptly. Failure to do so may result in penalties or further scrutiny.

Representation: You have the right to be represented by a tax professional during the audit. Hiring a tax attorney or accountant with audit experience can be beneficial.

Resolution: Once the audit is complete, the auditor will discuss their findings and any adjustments needed. You have the right to appeal if you disagree with the results.

Conclusion

In California, CDTFA and FTB audits are essential tools for ensuring tax compliance among individuals and businesses. While the prospect of an audit may seem daunting, understanding the basics of these audits and knowing your rights and responsibilities can help you navigate the process more smoothly. If you ever find yourself facing a CDTFA or FTB audit, it's wise to seek professional guidance to ensure that your rights are protected and that you comply with California's complex tax laws.