State Tax Audits & Disputes

If you received a contact letter from the Franchise Tax Board (FTB) questioning a position you have taken on a state tax return, an audit may be averted if you know what the auditor is looking for. The attorneys at Moskowitz, LLP have been navigating the FTB audit process for many years and know how to properly respond to its inquiries in order to best protect your interests.

Franchise Tax Board audits and penalties

In most cases, the FTB will initiate contact by sending you an Information Document Request to determine if you omitted taxable income and can substantiate all expenses claimed. It is extremely important to respond promptly – the FTB may consider an untimely response as evidence of fraud and assess a 75% civil fraud penalty against you. Your case may even be referred to a special investigations unit for criminal prosecution.

The penalty for any state tax underpayment is 5% of the tax due, plus 0.5% per month (up to 25%), and the penalty for filing late is 5% per month (up to 25%). If your return is more than 60 days late, the minimum penalty is the lesser of $135 or 100% of the unpaid tax. Interest is also charged from the due date of the return.

California residency and income sourcing

Some states stop taxing you as soon as you leave the state. Others, like California, continue to assess taxes even if you no longer live or operate a business here.

The FTB routinely audits those claiming a non-residential tax status and/or have California source income. We frequently advise individuals and companies regarding the state income tax implications of breaking residence, spinning off a business entity in another state, and out-of-state business merges with California companies.

Moskowitz, LLP state income tax defense services

If you need to contest a state tax liability assessment, we can assist you at any stage of your tax controversy and proceed to litigation if necessary.

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