It’s been said that the only things that are certain in life are death and taxes. While both things are certain, death only occurs once, while income taxes, on the other hand, must be paid annually. In general, most people can deal with preparing and filing their personal income taxes without getting into trouble. However, the Internal Revenue Service (IRS) and the California Franchise Tax Board (FTB), are in the business of collecting taxes. If mistakes are made, and rules aren’t followed, both entities can be extremely aggressive with unsuspecting taxpayers. This is when an experienced California tax attorney can be an indispensable asset.
Most taxpayers think , or at least hope, that they’ve done everything right after preparing and filing their tax returns. When they are contacted later by either the IRS or FTB and informed that they’ve made a mistake, the anxiety begins; and, when advised they now owe interest and penalties on top of back taxes, a feeling of hopelessness quickly sets in. These penalties and interest can pile up fast and many a taxpayer finds himself unable to extricate himself from an ever increasing debt. To make matters worse, in some cases, a taxpayer may compound his or her mistake by ignoring the IRS or FTB, hoping the whole mess will simply go away. Unfortunately, it never does.
In this article, we’re going to take a look at the difference between the IRS and the FTB. We’ll also look at situations where the average taxpayer might need to consider hiring a tax attorney to protect their interests.
IRS vs. FTB – What’s the Difference?
The IRS and the FTB both collect income taxes under two different tax codes. The IRS deals with federal taxes using the Internal Revenue Code (IRC). The FTB, on the other hand, deals with state taxes using the California Revenue and Taxation Code. Of the two, the IRS is the larger governmental entity and collects more revenue than the FTB. Because of this, the FTB will often use the information collected during an IRS audit, focusing on specific areas where a taxpayer is statistically more likely to make mistakes. In addition, the FTB tends to be more forceful than the IRS when it comes to enforcement of the tax laws and collection of back taxes. When it comes to enforcement and collection, the FTB will use California records which the IRS typically cannot access.
Furthermore, the FTB requires that a taxpayer disclose more financial information on returns than the IRS. The FTB also has more stringent deadlines. It’s dense layers of administration make it slower and more difficult to resolve issues once they have been raised. (Leave it to California to beat the federal government when it comes to red tape.) For example, on average it takes more than a year to get the state to approve a tax settlement that will resolve an issue initially flagged by the state.
Why Should I Hire a Tax Attorney?
There are two reasons why you should hire a tax attorney to represent your interests against either the IRS or the FTB. First, all communication between you and your tax attorney is privileged information. This means that, unlike a CPA or tax preparer, your tax attorney cannot be compelled to testify against you in any legal proceedings involving the IRS or the FTB.
Second, a tax attorney will be able to give you the guidance you need to make the right decisions when dealing with the IRS or FTB. Your tax attorney should have already successfully negotiated hundreds of tax settlements, offers in compromise or installment agreements with both entities. They know the law, and they are aware of all the various programs that are available to taxpayers who owe back taxes. They will be able to use this knowledge to help find the program that offers the best solution to your particular tax problem.
Certainly, a CPA that specializes in tax will be aware of some of the possible solutions. However, their principal job often deals with preparing tax returns rather than tax legislation and case law. The federal and California tax laws are complex and change constantly. If you’ve already been notified by the IRS or the FTB that there is an error in your return, seeking out and taking advice from the wrong person can be a very costly mistake.
When Should I Hire a Tax Attorney?
The short answer to this question is that you need a tax attorney when you are initially contacted by the IRS or FTB regarding a potential problem with your return or tax payment. Ideally, however, it is wise to have a tax attorney giving you advice before trouble raises its ugly head. This is especially true if you own a business or are self-employed or have a large tax liability along with a large number of assets that you would like to protect.
Businesses are taxed differently than individuals. This simple fact is probably why so many taxpayers inadvertently get into tax trouble. An experienced tax attorney can guide you through the complexities associated with business or self-employment tax filings. A tax attorney will also show you ways to lower your taxes in the future, making them easier to manage.
If you have been notified by the IRS or the FTB about an upcoming audit, you should immediately consider hiring a tax attorney. An experienced tax attorney can:
- Research the law and apply the facts in doing an analysis of the auditor’s position;
- Communicate effectively with the tax agency staff;
- Attend all meetings with the auditor and/or his supervisor;
- Successfully negotiate a settlement of taxes, interest and penalties, including setting up an installment plan or making an Offer in Compromise (OIC); and,
- Make sure that you don’t overpay your taxes.
Both the IRS and the FTB can also issue tax liens against personal and real property. While these liens are in effect, your property is essentially collateral for the amount of money that you owe California or the federal government. The liens also have the potential to negatively affect your credit. An experienced tax lawyer can negotiate with the tax authority in question to have these liens removed.
As you know, both the IRS and FTB have the necessary tools to motivate taxpayers to get into compliance and remain there. If you’re feeling pressure from the IRS or FTB regarding a tax matter, consider hiring an experienced California tax attorney. Our tax professionals can lighten your load by validating the tax assessment; and, if it is valid, guide you through the repayment process, using their knowledge of federal and California tax law to help you achieve the best possible results. Contact us today for a free and confidential consultation.