San Francisco Tax Preparation / CPA: CA – Taxpayer’s protest for adjustments to determined measure of tax denied

Filed in CCH NEWS FEED by on July 10, 2020

A fast food restaurant operator’s (taxpayer’s) protest for adjustments to the determined measure of California sales tax was denied because the taxpayer failed to establish any error in the measure of tax or in the audit methodology used to compute it. Generally, when the California Department of Tax and Fee Administration (CDTFA) is not satisfied with the amount of tax reported by the taxpayer, or in the case of a failure to file a return, it may determine the amount required to be paid on the basis of any information which is in its possession or may come into its possession. In this matter, the CDTFA reviewed the taxpayer’s detailed sales records for 14 days along with his credit card receipts, as shown on its 1099- K statements, to compute audited sales and concluded that the taxpayer underreported his taxable sales. Since the CDTFA’s was based on the observation test and the taxpayer’s records, it was concluded that its determination was both reasonable and rational. Moreover, the CDTFA performed a second audit method to ensure that its determination was reasonable. Therefore, the burden of proof shifted to the taxpayer to establish that the CDTFA’s determined measure of tax was erroneous or overstated. Although the taxpayer argued that his reported taxable sales were accurate and should have been accepted, this argument did not explain why or how the determined measure of tax was erroneous because the taxpayer failed to provide any documentation in this regard. Further, the taxpayer argued that the CDTFA should have performed a markup analysis instead of using a credit card sales ratio. However, there is no statutory requirement that the CDTFA must use one audit method over another and it is up to the CDTFA’s discretion on what method it believes is the most accurate way to audit a taxpayer’s business. Therefore, the taxpayer’s arguments were concluded to be insufficient to warrant any adjustments. Accordingly, his protest was denied. Shakolas, California Office of Tax Appeals, No. 18083527, October 11, 2019, released June 2020

Comments are closed.