The IRS isn’t anyone’s best friend, especially in California, which is home to high tax rates for both businesses and individuals. As of now, individual tax rates are sitting at 13.3%, and business tax rates are 8.84%. California legislators pick and choose instead of adopting federal tax law wholesale.
In general, the federal income tax statute of limitations is 3 years, but in a large amount of cases as well, it can be six years. The years are measured from the date you actually filed, whether or not it’s late or on time. However, early filers get measured by the due date, which currently sits at April 15th. So if you file your taxes February 1st, it will be measured from April 15th.
The question now becomes, what’s so harsh about California besides their tax rates? Well, The California Franchise Tax Board (FTB) is allowed an extra year to audit you for tax problems instead of the normal 3 years; therefore, California residents shouldn’t be surprised if they receive a bill in the mail that dates back to 4 years, rather than 3.
There are a few scenarios that allows the FTB an unlimited amount of time to hand you an audit. If a taxpayer fails to file a tax return anywhere in the United States, the IRS has an unlimited amount of time to audit. This also goes for fraudulent and false returns, since these are illegal and can result in criminal charges, along with hefty fines.
Another scenario involves an IRS audit changing your tax liability. This may come from losing an IRS case or simply agreeing with the IRS that you, in fact, may owe them more money while you’re going through an audit.
If the second scenario occurs, you’re obligated by law to inform the California FTB within the next six months. If you fail to do so, the statute of limitations will never run out. Which means you should be expecting a bill in the mail from 10+ years ago. The IRS rarely lets uncollected money slip by.
California residents definitely have good reasons for disliking the IRS. Who wants to constantly worry about whether or not they’re going to get audited from 10 or more years ago? No one. This is why it’s crucial to take care of your tax affairs, and make sure you’re reporting any changes to the California Franchise Board within the given time frame. Following these suggestions will eliminate the headache and worry of an unexpected audit.