California FTB Audit Strategy

At Brotman Law, we focus on providing as much as we can for our clients. Our strategy pages give you a detailed look at how we approach each type of tax issue – so you can understand what to expect when you work with us.

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How Do I Prepare For A 1099 Independent Contractor Audit?

In this article, we are going to dive through the nuts and bolts of how to really prepare for the audit when it comes to the subject of independent contractors and potential misclassification issues.

What Are The California Payroll Tax Penalties If I Do Not Pay?

You can run but you cannot hide from payroll taxes. Failure to pay can result in some steep penalties. How much? Keep reading.

California Payroll Audit Strategies For The Independent Contractor

Learn California payroll tax audit strategies for the independent contractor based on a few tips and tricks that we have learned over the years based on our experience in EDD audits.

What Happens During A California Independent Contractor Audit?

If you're facing a California independent contractor audit, you'll want to know what happens ahead of time so you can enter the audit prepared.

Federal (IRS) Payroll Tax

Payroll taxes, whether under the IRS or the State of California, are treated differently by the different agencies because of a variety of different factors. If you have employees, payroll taxes are a fact of life.

Using The EDD Lead System In A California Payroll Tax Audit

The first call on the audit is to figure out exactly what the auditor knows about the case. How much third-party information have they gathered and what access to that information do they have.

EDD Audit Process: Triggers, Penalties, Letters & More

What is the EDD audit process like? Learn about California EDD audit penalties, what triggers an EDD audit, what an EDD auditor asks, how long it takes (& more)

How To Prepare For A Tax Auditor To Interview Your Independent Contractors

Performing a pre-audit before your EDD payroll tax audit is a powerful way to avoid common mistakes and make sure you're fully prepared.

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The Ultimate Guide To California Payroll Tax Audits

Do you have questions about the California payroll tax audit process? Learn what the process is and how to make the best decision about handling your tax audit.

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How to Prepare for the California Payroll Tax Auditor to Interview Your Independent Contractors

Did you know that for a California EDD payroll tax audit, a good rule of thumb is that you should gather about five people that are your best sources for 1099 information and create a reference sheet for the tax auditor to reach out and contact?

Blog

What Is an Employment Development Department (EDD) Audit?

The key to any Employment Development Department audit is to make certain all records submitted are relevant to the EDD. Any records that do not pertain to employment-related issues are not relevant.

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California Payroll Tax: SUI, ETT, SDI & PIT Employer Guide

California payroll tax, SUI, ETT, SDI, and PIT guide. How much are payroll taxes in California? What are the employer and employment laws in CA state.

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What Happens During a California Independent Contractor Audit?

The auditor’s first goal in an independent contractor audit is establishing a system and a pattern of routine for the business’s operations.

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How to Prepare for a 1099 Independent Contractor Audit

The 1099 independent contractor portion of preparing for the audit is by far the most labor-intensive and time-consuming portion of the project.

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How to Pre-Audit Yourself in Advance of Your EDD Payroll Tax Audit

There are four tests that the EDD payroll tax auditor will go through in an audit. You want to make sure that you do those four tests yourself, or some variation of them, because that's exactly what you are going to be put through for the audit.

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What Records are Required for a California Payroll Tax Audit?

What usually happens in a payroll tax audit is that the auditor will send you a laundry list of documents that they want to examine. Of the different types of audits, payroll tax audits are usually the ones that have the most flexibility because in a payroll tax audit they are basically running tests.

The Audit Process Step by Step

Here's what happens from the moment you receive an audit notice to resolution:

1. Notice received — The IRS sends a letter explaining what they're examining and what documentation they need
2. Power of Attorney filed — We sign Form 2848, which means the IRS talks to us, not you
3. Document review — We review every document before anything goes to the IRS. We provide exactly what's needed — nothing more
4. Examination — The IRS reviews your records. For office and field audits, we attend all meetings in your place
5. Proposed adjustments — If the IRS wants to make changes, they issue a written proposal. We review it line by line
6. Negotiation or appeal — We challenge anything we disagree with. If we can't resolve it at the exam level, we take it to appeals
7. Resolution — Case closed. We make sure you understand the outcome and what it means going forward

Why You Need Professional Representation

Here's the reality: anything you say to the IRS can be used against you. Even an innocent statement can be misinterpreted, taken out of context, or used to expand the scope of your audit.

Your CPA probably filed your return. That's great. But filing a return and defending one are two completely different skills. You wouldn't send your dentist to perform heart surgery — the same logic applies.

A qualified tax attorney knows IRS procedures inside and out, understands the legal standards the IRS must meet, and knows exactly how to position your case for the best possible outcome.

Appeals & Next Steps

If you disagree with the audit results, you have the right to appeal. The IRS Office of Appeals is independent from the examination division, and they settle the majority of cases they hear.

We've won over 100 appeals by building cases that are thoroughly documented and legally sound. The key is presenting a clear, well-organized argument that makes it easier for the appeals officer to rule in your favor.

If appeals doesn't resolve it, the next step is Tax Court. We're prepared for that too, but in our experience, most cases settle well before they get to trial.

How to Prevent Future Audits

Once your audit is resolved, the last thing you want is another one. Here's what we recommend to minimize your risk:

• Keep meticulous records — especially for deductions and business expenses
• Report all income — even if you didn't receive a 1099
• File on time, every time
• Use actual calculated figures rather than round numbers — while not a major audit trigger on its own, it's a best practice that signals accuracy in your records
• Work with a qualified tax professional who understands your situation
• Consider a proactive tax strategy engagement to optimize your structure and reduce risk