If you’ve been audited by the California State Board of Equalization (BOE), you may be facing a serious financial situation. The BOE may have decided that you have underpaid your taxes and now owe what you’ve failed to pay, plus interest and penalties imposed by the auditor. If this is the case, what is your next step?
In many cases, the next step is to schedule a meeting with the supervisor of the auditor who handled your case, and attempt to show the supervisor that the auditor’s decision is wrong. If that doesn’t work, you can then meet with the Principal Auditor for the tax district in which your retail business is located. If that also fails, you can file a formal appeal.
The first step in the appeal process is the filing of a Petition for Redetermination. Once your audit has been completed, you will receive a Notice of Determination from the BOE that they’ve decided you’ve underpaid your taxes. Once the Notice is issued, you have 30 days from the mailing date of the Notice to file your Petition for Redetermination. If you file your Petition before the Notice is issued or more than 30 days after it is mailed, your Petition will be rejected. The result of the BOE audit will then be considered final.
Your Petition must be in writing. It must specifically state which tax amounts you believe are in error, as well as the reasons and law that support your belief. You or your authorized representative must sign the Petition and forward it and all supporting documentation to the Petitions Section of the BOE via email, fax, or U.S. mail. Finally, in your Petition, you can request an appeals conference, an oral hearing before the Board itself, or both. We recommend requesting both in every case. This last step is extremely important should the Board uphold the auditor’s findings.
Once your Petition is filed, the BOE will review your arguments, the law and your claims the auditor has made an error. During this review, BOE staff may ask you for additional documentation. You also have the ability at any time before a final decision is rendered to amend your Petition to add additional reasons or legal arguments that demonstrate the original determination was in error.
The BOE will make a determination on your Petition and you will receive notification of the results. If the BOE denies your Petition, either in whole or in part, you have the ability to appeal that decision as long as you made a request for an appeals conference and/or a hearing before the full five-member Board in the Petition. If you have, BOE staff will ask you to confirm that request with the BOE in writing. If you did not make such a request, or if you fail to respond to the BOE request for confirmation in a timely manner, your case will be concluded and a Notice of Redetermination containing the BOE’s decision on your Petition will be issued. The amount contained in that decision is now considered final and due.
If instead, you have confirmed in writing your request for an appeals conference and/or Board hearing, the BOE will refer your case to the Appeals Division. You will be notified of this fact and will be provided with a Verification of Appeals Conference form. (It should be noted that an appeals conference will always be held even if you only requested an oral hearing before the Board in your Petition.) The Verification of Appeals Conference form must be completed and returned to the BOE within 15 days.
The appeals conference will usually be held at the BOE field office that handled your audit; however, you may request that the appeals conference be held at BOE headquarters in Sacramento or at another district office if more convenient. The BOE will schedule your conference and notify you in writing of the date, time and location. In this notification, they will also provide you with a Response to Notice of Conference form that must be returned, again within 15 days. The Response to Notice confirms your intention to attend the conference. You do have the option to waive attendance and submit written arguments and documentary support prior to the conference.
The conference will be held with an Appeals Division auditor or attorney who has not been previously involved in your case. The proceedings of the conference are not recorded by the BOE. However, you have the option to record the conference at your own expense either electronically or by using a court reporter. If you do so, you will be required to provide the BOE with a transcription of the proceedings at no cost. Once the conference is concluded, the Appeals Division will issue a formal written Decision and Recommendation but this usually occurs about 90 days after the conference. The Decision will contain an analysis of your case, a conclusion based on that analysis, and a recommendation. If you agree with the Decision and Recommendation, your appeal is over and the BOE will issue a Notice of Redetermination. Any outstanding tax amounts plus interest and penalties will now be due.
If you do not agree with the Decision and Recommendation and have not previously requested a Board hearing in your original Petition, you must now request one in writing. This request must be made within 30 days of the issuance of the Decision and Recommendation.
The purpose of a board hearing is to present oral arguments regarding issues of fact or law that remain in dispute in your appeal. It is a formal proceeding much like the California Supreme Court or any of the Appellate Courts. If you are not accustomed to this type of proceeding it is strongly recommended that you retain an experienced state and local tax attorney who does have appeals experience before the Board to argue your case effectively. The Board meets monthly in either northern or southern California. This year, the Board has scheduled seven meetings in Sacramento, four in Los Angeles, and one in Irvine. At least 75 days before the hearing, the BOE will send you a notification of the date, time, and location of your hearing. Along with the notification, you will also receive a Response to Notice of Board Hearing form and a copy of the Board’s hearing procedures. The Response to Notice of Board Hearing, indicating that you will be attending the hearing, must be submitted back to the BOE within 15 days of the date of the Notice. If you need to postpone the Board hearing to a later date, the Notice of Hearing will specify a deadline the postponement request must be made by. You must provide adequate justification in order to obtain a postponement. Postponement requests made after the deadline or additional postponement requests will only be granted if extreme circumstances exist. You will be required to file an opening brief with the Chief of Board Proceedings at least 55 days before the hearing date. Your brief should contain a statement of the facts and issues before the Board and a discussion of the applicable law and court or Board decisions that support your case. The hearing itself is short and run with extreme precision. All proceedings are recorded by a court reporter. Typically, you will have ten minutes to present your oral argument. The other party will then have ten minutes to respond and you will have five additional minutes to rebut that response.
Once the oral argument is concluded, the Board will either make an immediate decision or will take the matter under advisement to be decided later in the day or at a subsequent Board meeting. Typically all cases are decided on the same day as they are heard. If your case is heard in the morning, the Board will usually vote prior to breaking for lunch and if your case is heard in the afternoon, the Board will usually decide your case just before adjourning for the day.
You will receive a Notice of Redetermination within 45 days of the date the Board makes a decision. This Notice will indicate the amount of taxes, interest and penalties you owe, if any. The Notice becomes final 30 days after the date of issuance but you may request a rehearing within those 30 days. If you do not pay the amount indicated in the Notice within these 30 days, an additional 10% penalty will be charged. Once you pay the liability you can still claim a refund with the BOE and/or file suit in any of several California Superior Courts in cities that have an office of the California Attorney General.