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California restaurants and bars are cash-intensive businesses subject to a complex framework of Federal and State tax regulations. To make matters worse, tax compliance is not at the forefront of concerns most restaurants and bars must face in day-to-day operations; not compared to issues with staffing, payroll, and supply costs. Nevertheless, IRS and CDTFA audits can expose unrecognized tax liabilities that go back years and total an amount that few bars or restaurants can repay at once.
The CDTFA is one of the most difficult state tax revenue agencies to negotiate with. They have a repuation for being aggressive and inflexible.
Sometimes taxpayers don’t need a tax attorney to resolve their outstanding tax debt. For instance, those with personal income tax arrears for a single tax year can easily create an installment agreement with the IRS without a tax attorney. However, the same is not true for those in CDTFA collections. As stated above, the CDTFA is inflexible, aggressive, and uncaring. In some instances, they seem more interested in securing the largest upfront payment, even if that means shuttering the business whose ongoing income could facilitate repayment of the entire tax liability.
CDTFA Audit of Restaurants & Bars
The audit methods employed by the CDTFA concerning California bars and restaurants are no secret. In fact, they are contained in Chapter 8 of the CDTFA Audit Manual which details bar and restaurant audit procedures; markup methods of computing sales; & computation of cost of sales, selling prices, & markup.
Between you and the CDTFA auditor, the CDTFA auditor is the expert in tax law and procedures. However, when you hire a tax attorney, the tax attorney is the expert in tax law and procedures. By hiring a tax attorney to represent you in your CDTFA audit, you can level the playing field between you and the CDTFA.
The Benefit of Hiring A Sales Tax Attorney
As alluded to above, there are some instances where taxpayers can resolve their tax liability without hiring a tax attorney, but CDTFA audits are not such an instance. By retaining a tax attorney early in the audit process, you can realize several benefits that can help reduce your potential sales and use tax liability.
Only Provide Necessary Documents
Some unrepresented parties provide too much documentation to the CDTFA auditor in the spirit of demonstrating transparency and good faith. However, these unrepresented parties can easily enhance their tax liability by providing unnecessary documentation that supports a greater taxable sales figure. By hiring a sales tax attorney early in the audit process, bars and restaurants under audit by the CDTFA can avoid oversharing documentation and supply only those documents necessary to comply with the audit.
Identify & Resolve Problems Early
Some audit issues can be identified by your tax attorney before documents are furnished to the CDTFA auditor. By identifying the issues underlying your audit internally, your tax attorney can work with you to provide an explanation and supply documentation supporting your defense. For instance, documenting nontaxable tips can explain the discrepancy between your 1099-k reported credit card sales and taxable sales.
If you received notice of a CDTFA audit, call California tax attorney Jin Kim at (916) 299-9913 for a free consultation. In addition to bars and restaurants, tax attorney Jin Kim represents a diverse range of businesses from landscaping companies to gas stations.
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