Can an EA Represent Me in a CDTFA Audit?

The California Department of Tax and Fee Administration—CDTFA for short—is the state agency responsible for administering California’s sales and use tax program, along with dozens of other special taxes and fees. If you’ve ever wondered who collects the taxes on that restaurant meal, retail purchase, or fuel fillup, the answer is the CDTFA.

The CDTFA was created in 2017 when California restructured its tax administration, taking over most functions previously handled by the Board of Equalization (BOE). While the name changed, the core mission remained the same: ensuring businesses properly collect, report, and remit the taxes California depends on for funding.

The taxes and fees administered by the CDTFA include:

– Sales and Use Tax: The big one—California’s combined state and local sales tax rates range from 7.25% to over 10.25% depending on location. This applies to most retail sales of tangible personal property and some services.
– Cannabis Taxes: Cultivation, excise, and sales taxes on legal cannabis operations
– Fuel Taxes: Motor vehicle fuel tax, diesel fuel tax, and related fees
– Alcohol Taxes: Excise taxes on beer, wine, and distilled spirits
– Tobacco Taxes: Cigarette and tobacco products tax
– Various Special Taxes and Fees: Including timber yield tax, hazardous waste fees, tire fees, and many others

For most businesses, sales and use tax is the primary concern. California’s sales tax rules are notoriously complex, with countless exemptions, exceptions, and special rules that vary by industry and transaction type. This complexity is exactly why CDTFA audits can be so challenging—and why professional representation is so valuable.

The CDTFA conducts audits for several reasons, and understanding these triggers can help you assess your situation:

Random Selection: Some audits are simply the result of random selection as part of the CDTFA’s ongoing compliance verification program. If this is your situation, it doesn’t necessarily mean you did anything wrong—every business has some statistical chance of being selected.

Industry Targeting: Certain industries historically show higher rates of non-compliance or have complex tax rules that lead to common errors. Restaurants, contractors, auto dealers, and cannabis businesses face heightened audit attention. If you’re in one of these industries, the odds of an audit are elevated.

Data Matching Issues: The CDTFA receives information from various sources—federal tax returns, credit card processors, industry databases—and compares this data to your reported sales. Significant discrepancies trigger audits. For example, if your reported taxable sales seem low compared to your total credit card receipts, expect questions.

Prior Audit History: If a previous audit found significant underreporting, you’re more likely to be audited again. The CDTFA wants to verify that you’ve corrected compliance issues.

Complaints and Tips: Sometimes audits result from complaints—disgruntled employees, competitors, or customers who report suspected tax evasion. These leads can trigger targeted audits.

The financial exposure in a CDTFA audit can be substantial, often far exceeding what business owners initially expect. Here’s what you could be facing:

Unreported Tax Liability: If the audit determines you underreported taxable sales or overclaimed exemptions, you’ll owe the tax that should have been collected. With California’s high sales tax rates, this adds up quickly. A restaurant underreporting $500,000 in taxable sales over three years could face $40,000 to $50,000 in back taxes alone.

Interest: Interest accrues from the original due date of each unfiled or underpaid return. Over a multi-year audit period, interest alone can add 20% to 30% to the base tax liability.

Penalties: Various penalties may apply, including negligence penalties (10% of the tax), fraud penalties (up to 75% of the tax), and penalties for failure to maintain adequate records. In egregious cases, penalty exposure can exceed the original tax amount.

Personal Liability: Business owners and responsible persons can be held personally liable for unpaid sales tax. This pierces corporate protections—your personal assets can be at risk, not just business assets.

I’ve seen CDTFA assessments range from a few thousand dollars for minor issues to hundreds of thousands for significant underreporting. For some businesses, an unfavorable audit outcome threatens their very survival. This is why professional representation isn’t optional—it’s essential.

While the Enrolled Agent credential is federally issued by the U.S. Department of the Treasury, California permits qualified tax professionals—including EAs, CPAs, and attorneys—to represent taxpayers before state agencies like the CDTFA.

To formally represent you, I file a Power of Attorney (CDTFA Form 392) authorizing me to act on your behalf. Once this authorization is in place, I can:

– Communicate directly with CDTFA auditors and staff on all matters
– Receive confidential tax information and all audit correspondence
– Attend audit meetings and field examinations on your behalf
– Respond to information requests and document demands strategically
– Negotiate audit findings and propose adjustments
– File petitions for redetermination and represent you in administrative appeals
– Negotiate payment arrangements for any amounts ultimately owed

The key advantage of working with an EA who specializes in California tax matters is the combination of deep tax expertise with specific knowledge of CDTFA procedures, audit techniques, and appeal processes. General practitioners—even skilled ones—may lack this specialized experience.

When facing a CDTFA audit, you have options for representation: hire an attorney, engage a CPA, or work with an Enrolled Agent. Each has advantages depending on your situation:

Attorneys become necessary when your case involves potential criminal exposure (such as fraud allegations), complex constitutional issues, or likely litigation in civil court. For most sales tax audits, which are administrative proceedings, attorney-level representation may be more expensive than necessary.

CPAs bring strong accounting backgrounds valuable for reconstructing records and analyzing financial data. However, many CPAs focus primarily on accounting and financial reporting rather than tax controversy work. Experience with CDTFA audits specifically varies widely among CPAs.

Enrolled Agents who specialize in California tax representation offer focused expertise at competitive rates. We handle tax controversy as a core practice area, not a sideline. For the typical CDTFA audit—complex enough to require professional help but not involving criminal issues—an experienced EA often provides the optimal balance of expertise and value.

What matters most isn’t the letters after your representative’s name—it’s their specific experience with CDTFA audits. An EA who handles California sales tax matters regularly will typically outperform a generalist attorney or CPA who rarely deals with these issues.

Understanding what to expect reduces anxiety and enables better preparation. Here’s how CDTFA audits typically proceed:

Initial Contact and Scheduling: The CDTFA sends an audit notification letter identifying the periods to be examined and requesting an initial meeting. This letter typically arrives 30 to 60 days before the proposed audit start date. Don’t ignore this letter—response deadlines matter, and early engagement with a representative helps set the right tone.

Pre-Audit Conference: Before diving into records, the auditor typically conducts an initial conference to understand your business operations, accounting systems, and internal controls. This meeting shapes the auditor’s approach to your examination. Having representation at this stage ensures you present your business accurately without inadvertently raising red flags.

Document Request and Review: The auditor will request extensive documentation—sales records, purchase invoices, exemption certificates, bank statements, general ledger, and more. The completeness and organization of your records significantly impacts audit efficiency and outcome. A skilled representative helps you respond strategically, providing what’s required while avoiding unnecessary disclosures.

Examination and Testing: The auditor examines your records using various techniques. They may test specific transactions, analyze trends, compare reported sales to other data sources, and verify exemption claims. For businesses with high transaction volumes, auditors often use statistical sampling to estimate total liability based on a sample of transactions.

Draft Audit Findings: After completing their examination, the auditor presents draft findings identifying proposed adjustments. This is a critical juncture—you have the opportunity to provide additional documentation, correct errors, and negotiate adjustments before findings become final. Skilled representation at this stage can significantly reduce proposed assessments.

Closing Conference and Final Determination: A closing conference reviews final findings. If you agree, you sign the audit report and receive a Notice of Determination for any amounts owed. If you disagree, you have the right to petition for redetermination and pursue administrative appeals.

CDTFA auditors typically request comprehensive documentation. Having organized records ready expedites the audit and creates a positive impression. Common requests include:

– Sales and use tax returns for the audit period
– Sales journals, registers, and summaries
– Purchase journals and accounts payable records
– General ledger and chart of accounts
– Bank statements for all business accounts
– Resale certificates received from customers
– Exemption certificates for nontaxable sales
– Federal income tax returns
– Point-of-sale system reports and Z-tapes
– Credit card processing statements
– Fixed asset records and depreciation schedules

One critical area: resale and exemption certificates. If you claimed sales were nontaxable because the buyer provided a resale certificate, you need that certificate on file. Missing certificates for claimed exempt sales can result in those sales being treated as taxable—often a significant source of audit liability.

Certain issues appear repeatedly in CDTFA audits. Understanding these common problems helps you assess your own exposure and prepare for what auditors may focus on:

Unreported Taxable Sales: This is the most common finding. Auditors compare your reported taxable sales to various benchmarks—credit card receipts, federal tax return gross receipts, industry averages—to identify potential underreporting. Discrepancies trigger detailed examination.

Invalid or Missing Exemption Certificates: If you claimed sales were nontaxable but can’t produce valid exemption certificates, those sales become taxable. This is especially common in wholesale and manufacturing businesses that make numerous resale sales.

Use Tax on Purchases: When you purchase items from out-of-state vendors who don’t charge California sales tax, you owe “use tax” on those purchases. Many businesses fail to self-report and remit use tax, creating significant audit exposure—especially for equipment and fixture purchases.

Improper Deductions: Businesses sometimes claim deductions for labor, exempt sales, or returns that aren’t properly documented or don’t qualify under California law. Auditors scrutinize these deductions carefully.

Industry-Specific Issues: Restaurants face scrutiny on complimentary meals, employee meals, and catering sales. Contractors deal with complex rules about materials versus labor. Auto dealers face issues with trade-in allowances and documentation. Each industry has its own common pitfalls.

If the CDTFA proposes an assessment you believe is incorrect, you have several options:

Negotiate During the Audit: The best time to address issues is before findings become final. During the audit, you can provide additional documentation, offer alternative interpretations, and negotiate adjustments with the auditor and their supervisor. Skilled representation at this stage often achieves significant reductions.

Petition for Redetermination: After receiving a Notice of Determination, you have 30 days to file a petition requesting the CDTFA reconsider its assessment. This petition must clearly state your objections and supporting arguments. I prepare and file these petitions on behalf of clients, presenting the strongest possible case for reduction.

Appeals Conference: If your petition isn’t fully resolved, you can request an appeals conference with the CDTFA’s Appeals Bureau. This provides an opportunity to present your case to someone outside the audit function who reviews the matter with fresh eyes.

Office of Tax Appeals: If administrative remedies don’t resolve the dispute, you can appeal to California’s Office of Tax Appeals (OTA), an independent agency that hears tax disputes. OTA proceedings are more formal, involving briefing and a hearing before an administrative law judge.

My approach to CDTFA audits combines thorough preparation, strategic advocacy, and deep knowledge of California sales tax law. Here’s what you can expect when you engage my services:

Comprehensive Business Analysis: Before responding to the CDTFA, I take time to understand your business operations, transaction flows, and record-keeping systems. This knowledge allows me to anticipate audit issues, identify documentation needs, and develop effective strategies.

Strategic Document Management: I work with you to gather and organize required documentation, ensuring we provide what’s legally required while presenting your records in the most favorable light. Well-organized, professional documentation creates a positive impression and facilitates efficient audits.

Direct Auditor Interface: I handle all communications with CDTFA auditors, attend meetings on your behalf, and manage the audit process from start to finish. You stay informed of progress while I handle the technical details and negotiations.

Aggressive Defense of Valid Positions: When I believe the CDTFA is taking an incorrect position, I advocate forcefully for my clients. This includes researching applicable law, preparing written arguments, and escalating disputes through supervisory review and formal appeals when appropriate.

Resolution-Focused Negotiation: Not every battle is worth fighting. When compromise makes sense, I negotiate strategically to achieve the best practical outcome. This might involve conceding some issues while vigorously contesting others, or negotiating penalty abatement in exchange for prompt resolution.

My background combines high-level corporate finance experience with focused California tax expertise. Before establishing my tax practice, I served as Controller at Xerox Corporation and Director of Finance at AEG, managing complex financial operations for over two decades. This corporate experience gives me deep understanding of business operations, internal controls, and financial record-keeping—knowledge that’s directly applicable to sales tax audits.

As an Enrolled Agent specializing in California tax matters, I regularly represent businesses before the CDTFA, FTB, and EDD. This isn’t occasional work—it’s a core focus of my practice. I understand CDTFA procedures, know how auditors approach examinations, and have developed effective strategies through years of hands-on experience.

I’ve represented businesses across industries—retailers, restaurants, contractors, wholesalers, manufacturers, and service providers. Each industry has unique sales tax considerations, and experience across sectors informs my approach to each new engagement.

Representation costs depend on audit complexity, the periods covered, and issues involved. For many audits, I offer flat-fee arrangements providing cost certainty.

Consider representation costs against potential exposure. A $5,000 investment in professional representation that reduces a $75,000 proposed assessment to $25,000 delivers exceptional value. In my experience, effective representation typically saves clients far more than it costs.

Yes—though acting quickly is essential. You have only 30 days from a Notice of Determination to file a petition for redetermination. Missing this deadline can eliminate your appeal rights. Even if some time has passed, options may remain, so contact me immediately to discuss your situation.

Absolutely. While based in Whittier in Los Angeles County, I represent businesses throughout California in CDTFA matters. Much of the work can be handled remotely, and I travel to CDTFA offices statewide when in-person attendance is necessary. I also handle federal IRS matters nationwide and serve American expatriates worldwide.

If you’ve just received a CDTFA audit notification:

1. Note deadlines carefully. Mark response dates on your calendar immediately.
2. Don’t panic—but don’t ignore it. Audits are manageable with proper representation. Ignoring notices only makes things worse.
3. Don’t contact the CDTFA yet. Before responding or scheduling meetings, consult a qualified representative.
4. Locate your records. Begin gathering sales records, exemption certificates, and tax returns for the audit period.
5. Contact an experienced representative. Early engagement leads to better outcomes.