There is no statute of limitations upon many California tax authorities, and their ability to go into prior years in pursuit of additional revenues. A statue of limitations in this case is simply restriction on the number of years where a tax liability can be pursued. The IRS has a statute of limitations of 7 years, and many San Diego businesses assume this is the case for all tax records. It is not. You should keep all business records and tax returns for as long as possible. Scan them and protect them as you never know when a California tax agency such as the FTB will attempt to audit your business and look back 10, 15, 18 years or more to generate “problems” and therefore revenue.
How long do you keep your records? If you are a business, as long as you are in business. They can go back as far as they want to. One example is that California businesses are required to report changes to IRS returns. One San Diego business received a letter from the FTB asking about a change to their IRS tax return over 10 years ago, demanding payment of a substantial amount in back taxes, penalties and interests. The business hadn’t kept the returns, and even the IRS doesn’t keep them for more than 7 years. So even though there was no ability to prove or contest the facts at hand the business had to pay the demand of the FTB.
If you are contacted by the IRS, FTB or any other California taxation authority your first action should be to call us for a free initial consultation at 866-631-3470. Learn about the protections of “attorney-client privilege” and how we can protect the matter from creeping into a much larger issue, and in many cases protect you from having to pay taxes and penalties you simply don’t owe.