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I was storing some product at a fulfillment company in California in 2011 & 2012. I live in Florida where I do business from my home. I have been doing my taxes with a CPA so it would get done right, as I feared making a mistake if I did it myself. The CPA came to me in 2013 and stated after doing some research she found that I needed to file my 2011 & 2012 franchise tax with the state of California. I said okay and signed the tax return. (I was not aware of franchise tax and she was not either) I had a sellers permit and only sold a few items to individuals,which I paid taxes for.

On 5/16/2014 I get a letter from the franchise tax board of California that they found a mistake on the return for 2011, 2012 that she prepared and now I owe due $3,200 for interest, penalties and fees.

If I knew I was supposed to pay a franchise tax, I would have paid it. She has been doing my taxes now for 6 years and she has stated that she is not responsible for this.

  • What is the right way to handle this?
  • Am I wrong for expecting the CPA should have properly filled out and filed my taxes?
  • How can I find out if the CPA has missed anything else?
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  • Are you going to take her to small claims for $50?
    – Pete B.
    Jun 2, 2014 at 14:30
  • No, It's not the $50 it the fact it was she mistake in the first place. Now I owe 1,900 in penalties.CPA who perpared the return should be rady to defend it Right?
    – Sherry
    Jun 2, 2014 at 16:00

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What is the right way to handle this?

Did you check the forms? Did the form state $0 tax due on the FTB LLC/Corp form (I'm guessing you operate as LLC/Corp, since you're dealing with the Franchise Tax)?

The responsibility is ultimately yours. You should cross check all the numbers and verify that they're correct.

That said, if the CPA filled the forms incorrectly based on your correct data - then she made a mistake and can be held liable. CPA filing forms from a jurisdiction on the other end of the country without proper research and knowledge may be held negligent if she made a grave mistake.

You can file a law suit against the CPA (which will probably trigger her E&O insurance carrier who'll try to settle if there's a good chance for your lawsuit to not be thrown away outright), or complain to the State regulatory agency overseeing CPAs in the State of her license. Or both.

Am I wrong for expecting the CPA should have properly filled out and filed my taxes?

No, but it doesn't shift the responsibility from you.

How can I find out if the CPA has missed anything else?

Same as with doctors and lawyers - get a second opinion. Preferably from a CPA licensed in California.

You and only you are responsible for your taxes. You may try to pin the penalties and interest on the CPA if she really made a mistake.

California is notorious for very high LLC/Corp franchise tax (cost of registering to do business in the State). It's $800 a year. You should have read the forms and the instructions carefully, it is very prominent. It is also very well discussed all over the Internet, any search engine would pop it up for you with a simple "California Franchise Tax for LLC/Corp" search.

CA FTB is also very aggressive in assessing and collecting the fee, and the rules of establishing nexus in CA are very broad. From your description it sounds like you were liable for the Franchise tax in CA, since you had a storage facility in CA. You may also be liable for sales taxes for that period.

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  • I would never have thought to search for California Franchise Tax. But then again if I were going to do business in California I would probably make sure I had someone who had a good understanding of the tax law there at least review my taxes before filing. In the end this does not really answer the key question "What is the right way to handle this?" I agree that it is the op's responsibility, but what does he need to do now? Ideally the way to avoid more penalties and hopefully reduce his burden from the ones assessed.
    – Chad
    Jun 3, 2014 at 13:49
  • @Chad "right way" is to pay the taxes and penalties. I do not appreciate you downvoting me for not going into being argumentative. If you think the question is opinion-based - close the question, don't downvote the objective answer.
    – littleadv
    Jun 4, 2014 at 2:22
  • That is not the whole answer. I would think a whole answer would explain how to go about minimizing the actual penalties to be paid, and if appropriate following up with how to deal with the CPA's failures. And more likely why that is a fools errand.
    – Chad
    Jun 4, 2014 at 13:39
  • @chad Your right I would of never thought to search Franchise Tax if I'm only storing stock in a fulfillment building. Franchise to me meant owning one busienss in Califorina. It was only a year and half when I shipped it to Floirda to my fulfillment where I do business.
    – Sherry
    Jun 4, 2014 at 14:24
  • @Sherry by doing business in a State you're expected to comply with its laws. Having a storage facility establishes nexus in CA, i.e.: makes your business subject to their laws. Just as an anecdote - I have nexus in AZ (I live in CA). The CPA I hired is licensed in both states.
    – littleadv
    Jun 4, 2014 at 16:02

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