I have been doing bookkeeping for clients since 2003 and opened an office in 2005, so there have been many years of practice under my belt before today. In all of those years, I’ve never had a client receive a notice of audit from the BOE. Now in the past few months, I’m aware of 3 people who’ve been chosen for an audit or review. I believe it is because CA is in need of money, so businesses are going to be audited to make sure they are reporting and paying their sales tax properly.
The first one is a client of mine who owns 4 restaurants (2 in CA and 2 in NV). He received a notice as they compared his federal tax return to his reported CA sales and saw a large discrepancy and apparently thought they’d be able to get a lot of unpaid sales tax from him. They wanted to look at 2010-2012. We had to pull all bank statements, sales information, etc to submit for review. After hours of pulling information and submitting to the auditor, they asked why the sales didn’t match and I created a spreadsheet to show the sales by month for each store and that the total did tie out to the tax return. The problem was that they never asked why his totals didn’t match until after all of the information was submitted. Had they asked about the discrepancy before beginning an audit, we could have explained the two state locations and most likely they would not have had to pursue auditing my client. This would have saved the state as well as my client the money it took to prove he was compliant.
The second business being audited is a brand new client of mine. When they came to me a few weeks ago, they mentioned they’ve had an audit going on for some time (they are also being audited back to 2010). He is also a restaurant, and restaurants have the reputation of under-reporting earnings because of cash sales, so I think this is one reason why they are being targeted. From what I understand of this situation, the prior bookkeeper has submitted all required documentation and this audit should be close with no tax due (my client has even been told he may be owed money, but that may be something he was told to ensure compliance thinking he’ll get money back).
The third client notified of a “review” is a corporate event planning company with part of their income being taxable, and part of it services which is not taxable. The BOE wants to make sure all taxable portions of the event are charged correctly with tax being paid. This is a brand new notification and we will be assisting our client with providing the required documentation to the agent.
So why do I mention this to you? I want to make sure you are doing your bookkeeping properly to guarantee you are submitting the correct information to the tax agencies. If you ever receive a notice that there will be an audit, there won’t be a need for you to worry as you will KNOW everything was done properly. The states are in need of more income, so they’ll be looking at businesses to make sure all taxable income is reported and paid. If you need assistance with your bookkeeping, we are here to help. You can reach us at 310-534-5577 or [email protected].
Candy
