CDTFA Audit Attorney

A CDTFA audit attorney works the part of a California sales tax audit that decides the number: the method the auditor uses to estimate your sales once the records do not satisfy them. You have an Audit Engagement Letter from the California Department of Tax and Fee Administration, or the auditor is already in your books. Since 2013 the firm has represented 400+ clients in audits, many of them CDTFA audits of restaurants, contractors, dealers and online sellers. If your question is whether a sales tax audit lawyer is worth hiring at all, our guide chapter on whether a sales tax audit needs a lawyer answers it.

How a CDTFA audit starts

The audit starts with an Audit Engagement Letter that names the audit period and attaches a records list, and the first meeting sets the method for everything after it. The letter comes from a district office, proposes an appointment, and lists what to have ready: sales and use tax returns and their worksheets, federal income tax returns, the general ledger and journals, purchase invoices, resale and exemption certificates, bank statements, point-of-sale reports and 1099-K forms. Requests during the audit are Information Document Requests, and the auditor keeps an Audit Findings Presentation Sheet for each issue. The opening interview is where the auditor learns how the business runs, decides whether the records are adequate under Regulation 1698, and chooses between auditing them and estimating around them. Owners describe their business generously in that meeting, and the auditor writes it down. What we do: file the CDTFA-392 power of attorney so the auditor deals with us, and settle the method before the auditor settles it for you.

What the auditor tests

The CDTFA rarely counts every sale; it tests reported sales against your deposits, your purchases and your processor records, and projects the difference across the whole audit period.

Bank deposit analysis: every deposit is a taxable sale until you show otherwise, so loans, transfers, owner contributions and the sales tax reimbursement inside each deposit have to be traced out.
Markup analysis: the auditor applies an expected markup to your purchases by product line and compares the result to reported sales; spoilage, self-consumption, theft, comps and price changes are the assumptions that move the number.
Sales for resale: an exempt sale for resale needs a resale certificate taken timely and in good faith under Regulation 1668, and unsupported ones are taxed. The CDTFA lets you cure them during the audit with XYZ letters to your customers, the CDTFA-504 series.
1099-K matching: card and marketplace totals on your 1099-K forms are compared with reported sales, and a gap is unreported sales unless the tips, sales tax, refunds and non-taxable items inside the processor figure are backed out.
Sampling and projection: a block of days or a statistical sample is examined and the error rate is projected over the audit period. A sample that caught your two best weekends projects an error that never happened.

What we do: get the sample design in writing before it runs, insist on stratification where transaction sizes vary, document every condition the markup ignores, and reconstruct actual figures where the records allow.

How engagements work

Many matters like this one run as a monthly flat-fee engagement: one number, agreed up front, that covers the work — agency contact, deadlines, document responses, strategy — until the matter resolves. Shorter, well-defined projects are often a one-time flat fee instead, and some matters genuinely fit hourly billing better. We will tell you which you are looking at on the first call, before you commit to anything. If you want the details first, see how we price our work.

Where does your CDTFA audit stand right now?

Tell us where things stand. We respond to new inquiries within one business day.

How far back the audit reaches

Three years for a business that filed returns, eight years for one that did not, and no limit where the CDTFA can show fraud or intent to evade. Revenue and Taxation Code section 6487 requires a Notice of Determination within three years after the return was filed or the quarter ended, and within eight years when no return was filed; fraud takes the limit off. Near the end of the three years the auditor asks you to sign a waiver extending the period, and whether to sign is a decision: refusing can force a rushed and inflated determination, while signing gives the audit time to be finished on the actual records. We sign waivers often, with a defined end date and scope.

The exit conference, the audit report and the Notice of Determination

The audit ends in an exit conference and a Report of Field Audit, and the number in that report becomes a Notice of Determination that you have 30 days to petition. At the exit conference the auditor walks through each finding on the presentation sheets, and disagreements go to the audit supervisor before the report is finalized. Then the Notice of Determination issues. Under section 6561 you have 30 days from service to file a petition for redetermination, and without one the determination is final, due and payable under section 6565 with a 10 percent penalty if unpaid. The petition has to state its grounds, and grounds left out are generally gone. What we do: contest the report before it becomes a notice, then draft the petition as the document that defines the appeal, with the methodology challenge and the legal issues separated so each can be won on its own.

After the petition: the appeals conference, settlement and the Office of Tax Appeals

Most CDTFA audits are decided at the appeals conference, and the ones that are not go to settlement or to the Office of Tax Appeals. The petition goes to the Appeals Bureau, which schedules an appeals conference with an attorney or auditor who has settlement authority and a duty to weigh the hazards of litigation, and it ends in a written Decision and Recommendation. In parallel, section 7093.5 authorizes the CDTFA’s Settlement Program for cases in protest, appeal or refund status. If the decision goes against you, the appeal to the Office of Tax Appeals is due 30 days after the Notice of Redetermination; the OTA is independent of the CDTFA and publishes its opinions. What we do: present the case at the conference the way a litigator would, because the appeals officer is deciding what the CDTFA would likely lose if the case went on, and run the settlement track alongside.

Penalties, and who else can be assessed

The penalties stack: 10 percent for negligence, 25 percent for fraud, and 40 percent for tax you collected from customers and did not send in. Section 6484 adds 10 percent where any part of the deficiency is due to negligence or intentional disregard. Section 6485 adds 25 percent where any part is due to fraud or intent to evade, and a fraud finding also removes the statute of limitations. Section 6597 adds 40 percent on sales tax reimbursement knowingly collected and not timely remitted, with exceptions for small amounts and reasonable cause. The assessment does not stay with the entity, either: when a corporation or LLC ends its business owing sales tax, section 6829 makes any officer, member or manager who controlled tax payments personally liable if the failure to pay was willful, and responsibility and willfulness are each contestable. Once a determination is final and unpaid, the file moves to CDTFA collections: liens, levies and the seller’s permit.

Where we see the most CDTFA audits

Restaurants and bars: cash sales, tips inside the 1099-K figure, comped meals and spoilage, and a markup test built from vendor invoices.
Auto dealers and repair shops: DMV registration data matched against reported sales, parts versus labor on repair orders, and deliveries claimed as out-of-state or for resale.
Cannabis: the cannabis excise tax alongside sales tax, cash-heavy records, and track-and-trace data compared with reported sales.
Construction: the contractor rules in Regulation 1521 on materials versus fixtures, self-consumed inventory, and use tax on out-of-state purchases.
Online sellers: marketplace facilitator rules, the nexus changes of 2019, and 1099-K totals from several processors.

What a CDTFA audit attorney does at each stage, and how long it takes

From engagement letter to Notice of Determination usually runs six to eighteen months, and a petition adds a year or more. Fieldwork often takes three to nine months, the report follows within a few months, the petition is due 30 days after the notice, the appeals conference is typically scheduled six to twelve months after the petition, and an OTA appeal adds twelve to eighteen months. These are observations from our files, not CDTFA commitments, and an auditor change, a waiver or a settlement referral moves any of them. Stage by stage: we file the CDTFA-392 before the first meeting, manage every document request and the sample during fieldwork, contest the presentation sheets at the exit conference, and after the notice petition, appear at the conference, pursue settlement and appeal where warranted. Fees are quoted before you sign, and the ranges are on our tax attorney cost page.

What to gather

The engagement letter and every CDTFA letter since, with dates.
Sales and use tax returns and their worksheets for the audit period, and federal income tax returns for the same years.
The general ledger and journals, purchase invoices by vendor, and every resale and exemption certificate on file.
Bank statements for every account the business touched, point-of-sale reports including voids and comps, and the 1099-K from each processor.
For a closed business, the date it stopped and who signed returns and payments in each quarter.

How long does a CDTFA audit take?

In our files, six to eighteen months from the engagement letter to the Notice of Determination, with fieldwork the longest part. A petition for redetermination adds six to twelve months to the appeals conference, and an Office of Tax Appeals case adds twelve to eighteen months more. Waivers, auditor changes and settlement referrals move all of those.

What happens if I miss the 30-day deadline on a Notice of Determination?

The determination is final under Revenue and Taxation Code section 6561, due and payable with a 10 percent penalty under section 6565, and the CDTFA can lien and levy. The merits can still be reached one way: pay the amount, file a Claim for Refund on Form CDTFA-101, and appeal a denial to the Office of Tax Appeals.

Can the CDTFA audit a business that never filed sales tax returns?

Yes, and the reach is longer. Section 6487 gives the CDTFA eight years for periods with no return, against three for a filer, and no limit where it can show fraud or intent to evade. A business that sold taxable goods without a seller’s permit is audited from its own bank records, which is the worst starting point.

Does the CDTFA have to use my records?

Only if they are adequate. Regulation 1698 sets what a seller has to keep, and when the auditor decides the records do not support the returns, the audit shifts to indirect methods: deposits, markup, processor data and samples. The defense is then about the method, and each method has assumptions that can be tested against how the business ran.

The CDTFA letters, one page each

Most sales tax audits arrive as a specific letter. Each page below explains one of them in plain English: what it means, the deadline it carries, what the CDTFA can do next, and how we handle it.

Talk to us about your CDTFA audit

We work from our San Diego office and represent businesses across California by phone and secure document exchange; CDTFA audits run by mail, email and video. The guide to California sales tax audits is free, and our sales tax attorney page covers when to hire one. The first call is free, takes 15 minutes, and will tell you where the audit stands and whether you need us. Book a free 15-minute call.

Sam Brotman, JD, LLM, MBA. Last reviewed September 2026.