Tax Relief Blog
Tax audits can be a daunting experience for any taxpayer. The California Franchise Tax Board (FTB) conducts audits to ensure compliance with state tax laws and to verify the accuracy of tax returns. Understanding the audit process and knowing your rights can significantly ease the stress associated with an audit. One of the most effective ways to navigate a tax audit is by enlisting the help of an enrolled agent (EA). This article will explore the intricacies of FTB tax audits and how an enrolled agent can represent and assist taxpayers throughout the process.
Get help with FTB CA tax audit representation by calling us at 1-877-788-2937.
Understanding the FTB Tax Audit Process
What Triggers an FTB Tax Audit?
The FTB selects tax returns for audit based on various criteria, including discrepancies between state and federal tax returns, prior audit history, and information from third-party sources. The goal is to identify potential tax issues and ensure that taxpayers have accurately reported their income, deductions, and credits.
Types of FTB Audits
The FTB conducts two primary types of audits: desk audits and field audits.
Desk Audits: These are conducted through correspondence and secure email. The FTB requests specific documents and information to verify items on the tax return. Desk audits are generally less intrusive and can be resolved relatively quickly.
Field Audits: These take place at the taxpayer’s residence, place of business, or another location that facilitates the examination of tax documents. Field audits are more comprehensive and involve a thorough review of the taxpayer’s books, records, and source documents.
The Audit Process
The FTB audit process involves several steps:
Initial Contact: The FTB sends an initial contact letter to inform the taxpayer that their return has been selected for audit. This letter outlines the scope of the audit and requests specific documents and information.
Information Gathering: The auditor gathers, evaluates, and documents information to verify the accuracy of the tax return. This may involve reviewing federal and state tax returns, prior audit history, income exclusions and deductions, and public information.
Audit Appointments: The auditor works with the taxpayer to schedule convenient times and locations for audit appointments. Throughout the audit, the auditor reviews deadlines and makes adjustments as needed to keep the audit moving towards timely completion.
Audit Plan: An audit plan establishes open lines of communication to promote understanding of commitments made and agreements reached between the taxpayer and auditor. This plan helps minimize the burden, cost, and intrusiveness of the audit.
At the end of the audit, the FTB provides its findings in writing. The taxpayer may receive a letter stating that their return is accepted as filed, a Notice of Proposed Assessment indicating additional tax owed, or a Notice of Overassessment indicating a refund.
The Role of Enrolled Agents in FTB Tax Audits
Who Are Enrolled Agents?
Enrolled agents (EAs) are tax professionals authorized by the U.S. Department of the Treasury to represent taxpayers before the Internal Revenue Service (IRS). EAs have unlimited practice rights, meaning they can represent any taxpayer, handle any tax matter, and represent clients before any IRS office. In California, EAs can also represent taxpayers before the FTB.
How Enrolled Agents Can Help During an FTB Audit
Representation: EAs can represent taxpayers during an FTB audit, ensuring that their rights are protected and that they receive fair treatment. To designate an EA as a representative, the taxpayer must complete and submit an FTB 3520, Power of Attorney (POA) form.
Expertise: EAs possess in-depth knowledge of tax laws and regulations, enabling them to provide expert guidance throughout the audit process. They can help taxpayers understand the audit’s scope, gather necessary documents, and respond to FTB requests.
Communication: EAs act as intermediaries between the taxpayer and the FTB, facilitating clear and concise communication. They can correspond with the FTB on behalf of the taxpayer, ensuring that all information requests are met and deadlines are adhered to.
Documentation: EAs assist in organizing and presenting documentation to support the taxpayer’s position. They ensure that all relevant documents are provided to the FTB and that any claims of privilege are properly documented.
Negotiation: If the FTB proposes adjustments to the taxpayer’s return, EAs can negotiate on behalf of the taxpayer. They can present additional information and arguments to support the taxpayer’s position and work towards a favorable resolution.
FTB Appeals and Protests: If the taxpayer disagrees with the FTB’s findings, EAs can help file a protest or appeal. They can represent the taxpayer during protest hearings and provide additional documents and information to substantiate the taxpayer’s position.
Steps to Designate an Enrolled Agent as a Representative
To designate an EA as a representative during an FTB audit, the taxpayer must complete the following steps:
Complete the FTB 3520 Form: The taxpayer must fill out the FTB 3520, Power of Attorney (POA) form. This form authorizes the EA to represent the taxpayer before the FTB.
Submit the Form: The completed FTB 3520 form must be submitted to the FTB. The taxpayer or the designated representative can submit the form.
Confirm Representation: Once the FTB receives the POA form, they will confirm the representation. The EA can then act on behalf of the taxpayer during the audit.
Benefits of Hiring an Enrolled Agent
Expertise and Knowledge
EAs are required to pass a comprehensive examination covering all aspects of the tax code and must complete continuing education courses to maintain their credentials. This ensures that they are up-to-date with the latest tax laws and regulations, providing taxpayers with expert guidance and representation.
Peace of Mind
Having an EA represent you during an FTB audit can provide peace of mind. EAs handle all communication with the FTB, gather and present documentation, and negotiate on your behalf. This allows you to focus on your personal and professional responsibilities without the added stress of dealing with an audit.
Fair Treatment
EAs ensure that taxpayers receive fair treatment during an audit. They are familiar with the FTB’s audit procedures and can ensure that the audit is conducted in accordance with established laws and regulations. EAs can also help protect your rights and ensure that you are not subjected to unnecessary burdens or costs.
Efficient Resolution
EAs work towards a timely and efficient resolution of the audit. They help gather and present all necessary documentation, respond to FTB requests promptly, and negotiate on your behalf. This can help expedite the audit process and minimize any potential disruptions to your life or business.
Navigating an FTB tax audit can be a complex and stressful experience. However, with the assistance of an enrolled agent, taxpayers can ensure that their rights are protected and that they receive fair treatment throughout the audit process. EAs provide expert guidance, handle all communication with the FTB, and work towards a timely and efficient resolution of the audit. By enlisting the help of an EA, taxpayers can navigate the audit process with confidence and peace of mind.
Get help with FTB CA tax audit representation by calling us at 1-877-788-2937.
