Proactive action prior to the start of an audit is not only good practice, but good finances. The California Department of Tax and Fee Administration (CDTFA) has many powers to audit businesses when not report or pay underreported sales and use taxes.
In case any form of discrepancies is found in the audit, penalties, interest, and even criminal charges can be imposed on the deliberate lack of compliance by the CDTFA. In cases of mistakes made about taxes, voluntary corrections show good faith, and the penalty is usually reduced, and the process of solving them easier.
What Types of Tax Errors Commonly Occur with the CDTFA?
Accidental mistakes in sales tax management occur frequently with businesses that deal especially in high-cash and multi-location business operations. The most common errors in CDTFA-related involve:
- Failure to collect the sales tax on taxable sales.
- Poor calculated district tax rates.
- Unclassification of sales as non-bit taxable.
- Omission of all money or deductions.
- Lack of payment of use tax on out-of-range purchases.
When such problems remain unremedied, they will result in serious liabilities when the CDTFA starts with an inquiry. Experienced IRS tax experts, including ( former IRS tax agent, a former auditor, and experienced tax lawyers, from Richmond, CA) who can rectify the errors.
Can Businesses Voluntarily Disclose Past Errors to the CDTFA?
Yes. The CDTFA uses the Voluntary Disclosure Program (VDP) to provide voluntary compliance. Unregistered or non-compliant businesses are able to turn themselves in with the help of this program and pay taxes with reduced penalties and limited look-back periods- normally three years as opposed to eight years.
Companies that proactively make voluntary disclosure ahead of being contacted by the CDTFA may often end up avoiding severe punishment, as well as damaging their reputations, that occur during enforcement measures.
How Does the Voluntary Disclosure Process Work?
It starts with an anonymous request to the CDTFA to find out whether it is qualified or not. After obtaining approval, the business has to:
- Register under the tax schemes at the CDTFA.
- Filing of the preceding period, which came under the agreement.
- Pay back levies, interest, as well as lower penalties.
- Keep proper records in the future.
Notably, such a process has to be done before any CDTFA contact, audit notice, or enforcement action. When the agency is initiating its investigation, there is rarely the possibility of voluntary disclosure.
What If the Business Is Already Registered but Made Reporting Errors?
Honest reporting mistakes can be made even by registered businesses. In this eventuality, they are allowed to make amended returns to rectify earlier returns. In the case of the mistake made in underpaid taxes, then the rest of the taxes plus the interest should be paid as soon as possible.
The CDTFA tends to add a positive light to self-correction, particularly when it is backed by a document that states the error was accidental and corrected.
Can Tax Professionals Help in Correcting CDTFA Errors?
Absolutely. Tax lawyers, accountants, and sales tax advisors are also important to assess previous returns, determine any flaws that may be involved, and consult the CDTFA on behalf of the business. Professionals can also assist businesses:
- Check on the sales accounts for the outstanding tax payment.
- Point-of-sale and reconcile accounting system.
- Make corrections on returns or VDP submissions.
- Discuss the reduction of penalties or installments in case of the existence of large back taxes.
Their professionalism assists in ensuring that the businesses comply with the compliance requirements in ways of reducing exposure. Experienced IRS tax experts, including ( former IRS tax agent, a former auditor, and experienced tax attorneys from Sherman Oaks) can work on these errors.
