Sometimes a Notice of Proposed Assessment may require corrections when new information is received from taxpayer. After a Notice of Proposed Assessment has been issued, and the taxpayer submits supplemental information leading to correction of the assessment, the FTB makes the correction. Depending on the circumstances, the assessment may be corrected by a second Notice of Action or a Notice of Revision; it may be withdrawn and a new NPA (Notice of Proposed Assessment) issued; or in the case of protested NPAs, it may be restored to protest status.
California State Tax
California Interagency Offer in Compromise
California streamlined offer in compromise process where now a single application can be used for three different agencies The Board of Equalization (BOE), Employment Development Department (EDD) and Franchise Tax Board (FTB). The application is located at https://www.edd.ca.gov/pdf_pub_ctr/de999ca.pdf. Just like before, taxpayers can apply for offer in compromise program when they are unable to pay their full tax liabilities to the state. The program allows taxpayers to negotiate a reduced amount of their non-disputed tax liabilities. The state will consider an Offer In Compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. However, previously California taxpayers had to submit a separate form to each of the three agencies. Now, they can submit a single interagency application with the state, and all three agencies will coordinate offer in compromise process among themselves. The form is available online at the California Tax Service Center (www.taxes.ca.gov), as well as at each of the three tax departments’ Website’s (BOE www.boe.ca.gov, EDD www.edd.ca.gov, FTB www.ftb.ca.gov). The individual agencies must still negotiate each Offer in Compromise separately for their respective taxes. For example, FTB will negotiate with taxpayer a state income tax liability and Board of Equalization will negotiate a sales or use tax liability.
California Payroll Tax Settlements
California EDD offers taxpayers tax settlement program, where EDD and taxpayer can settle a claim for less than the amount owed. EDD can settle if it evaluates costs and risks associated with the litigation of the case and determines that it is better and less expensive for EDD to settle for lower amount than to litigate in court. The Settlements Program allows an employer the opportunity to enter into a settlement agreement to also avoid the cost of prolonged litigation associated with resolving a disputed employment tax matter.
CDTFA Prior Audit Percentages of Error (PAPE) Program and Cut-Off Techniques
The prior audit percentages of error (PAPE) program involves the use, under certain circumstances, of a percentage of error developed in a prior audit for the sales or accounts payable portion of a current audit. It can be a valuable tool in streamlining the audit process. It is designed to reduce the time it takes to complete an audit and minimize the burden on taxpayers. When planning the audit, CDTFA supervisors and auditors evaluate whether the taxpayer is eligible for the use of a PAPE. This evaluation is conducted whether or not the taxpayer has already requested the use of a PAPE. If the taxpayer is eligible for the use of a PAPE, the auditor discusses the PAPE with the taxpayer as soon as possible rather than wait for the taxpayer to request using a PAPE. To qualify for the PAPE, the taxpayer must have at least one prior audit and must meet the number of conditions. One of the conditions is consistency of business operations during prior audit and current audit. Minor changes are generally ignored. It is important to remember that the use of a PAPE is limited to the current audit period as a PAPE cannot be used in two subsequent audits.
Board of Equalization Audits – Short Tests and Sampling – Part Two
In general, when auditing a business with good internal control, and a good accounting system, the test period may be a relatively small portion of the total audit period. However, in an audit of a business with little or no internal control, the test period most likely will cover a larger proportion of the audit period. If records are available, the periods selected for test will be spread over the entire audit period so that samples can be taken of all years and all seasons of the year. The size of each test period, in addition to the above considerations, will depend on the number of documents required to be examined. Usually the test periods consist of complete months or quarters, but periods of less than a month may be selected by auditor if daily or weekly controls can be established.
Board of Equalization Audits – Short Tests and Sampling – Part One
BOE uses short tests to come up with a decision as to whether to proceed or to accept as correct that item being tested. In fact, BOE encourages its auditors to use short tests when taxpayer’s records are in order. Any time short test can be expanded into full examination.
Board of Equalization Audits – Accounting Techniques
An audit made on a taxable measure basis generally places emphasis on the verification or accumulation of taxable differences as compared to an audit performed on a total sales and claimed deduction basis using individual lead schedules. Auditor will verify that all sources of revenue and deductions have been examined.
California Sales Tax Audit Procedures and Techniques
The purpose of a California sales tax audit is to correctly measure the tax. The Board of Equalization (BOE) auditor conducts preliminary probing and testing in order to see if there is a potential area of misplaced tax. Sometimes preliminary testing reveals that California sales tax audit of business is not warranted. When deciding whether to waive or perform an audit, the auditors consider the following points:
Multistate Tax Commission Multijurisdiction Resale Certificates
Multistate Tax Commission Multijurisdiction Resale Certificates
Board of Equalization Audit
Use of Form BOE-504 – Proving That a Sale Was Not a Resale
In a Board of Equalization audit, taxpayers should keep in mind that any of the evidence other than actual resale certificate, by itself is not the equivalent of a resale certificate timely taken in good faith, and may not relieve the seller of the liability for the tax.