1. Identify the Agency and Taxpayer Named on Each Notice
A company may receive city, state, and federal notices covering the same year. The agency, tax type, named taxpayer, and period establish which rules apply.
City Business Tax Depends on Activity within City Limits
The Los Angeles Office of Finance administers city business tax, often measured by gross receipts. Los Angeles County extends beyond city limits, while businesses based elsewhere may owe tax on activity inside the city. Compare the notice with the business registration, tax classification, and operating locations. Businesses crossing state lines face additional issues covered by state and local tax services.
State and Federal Taxes Follow Separate Filing Systems
The Franchise Tax Board (FTB) handles California income and franchise taxes, the California Department of Tax and Fee Administration (CDTFA) handles sales and use taxes, and the Employment Development Department (EDD) handles state payroll taxes. The IRS administers federal income and employment taxes. Match each assessment to its return, period, and legal entity. An LLC's federal tax classification does not determine its city tax duties, and a corporate assessment does not automatically create owner liability.
2. Trace Disputed Receipts and Payments to Source Records
An agency's calculation may differ from the company ledger for legitimate reasons. The taxpayer must identify the transactions, classification, and supporting records behind each disputed amount.
Gross Receipts Require Proper Sourcing and Classification
City business tax is generally based on gross receipts, not net profit. Invoices, contracts, shipping documents, and work logs help locate taxable activity. City Clerk's Rulings 14 and 15 address apportionment for certain businesses, subject to their classification and facts. An out-of-city billing address alone does not exclude receipts from the city's tax measure. Compare the renewal return with the assessment for misclassified revenue or unsupported allocations.
Different Returns May Report the Same Transaction Differently
Bank deposits may include loans, transfers, or payment processor adjustments rather than taxable sales. Income tax, sales tax, and payroll filings also apply different measures and reporting periods. Match questioned amounts to invoices, bank entries, filed returns, and any corrections. The business tax lawyer guide explains the separate task of reconciling records in a federal IRS audit. Preserve original books alongside later adjustments so the agency can see what was reported and what changed.
3. Match Each Tax Protest to Its Own Filing Deadline
A proposed assessment, hearing decision, and collection notice offer different remedies. Informal discussions with an auditor generally do not replace a timely written protest or petition.
Los Angeles Assessments Start with a Written Hearing Request
Under Los Angeles Municipal Code §21.16, a taxpayer generally has 45 days after service of an assessment to request an Assessment Review Officer hearing. The written request to the Director of Finance must explain the dispute. Audit workpapers and transaction records may support a challenge to classification or apportionment. The officer can affirm, reduce, or in specified circumstances increase the assessment. Further Board of Review proceedings may be available under Finance Director rules. Following the 2025 amendments, verify the current instructions before appealing the officer's decision.
State Tax Agencies Have Different Protest Periods
An FTB Notice of Proposed Assessment generally allows 60 days from its date to protest. An adverse Notice of Action generally allows 30 days to appeal to the Office of Tax Appeals. A CDTFA sales tax Notice of Determination ordinarily requires a petition for redetermination within 30 days after mailing. EDD payroll tax reassessment petitions generally have a 30-day period after service; certain immediately final assessments carry a 10-working-day period. Examine the precise notice and service rules before calculating a deadline.
IRS Appeals Depend on the Notice Issued
An IRS audit letter, statutory notice of deficiency, and collection notice follow different procedures. The response may involve an administrative protest, a Tax Court petition, or a collection remedy. A tax controversy review can distinguish a challenge to the amount assessed from a dispute over collection. Identify the designated filing address, deadline, and legal remedy before submitting a response.
4. Assess Personal Liability Independently of Company Tax Debt
A corporation's or LLC's unpaid tax is not automatically its owner's debt. Federal trust fund penalties and California sales tax assessments use distinct standards for individual responsibility.
Federal Trust Fund Penalties Require Responsibility and Willfulness
Under Internal Revenue Code §6672, the IRS may assess a trust fund recovery penalty against someone responsible for covered taxes who willfully fails to collect, account for, or pay them over. Payment authority, creditor decisions, and knowledge of unpaid withholding are relevant; an officer title alone is insufficient. The penalty generally covers withheld income tax and the employee share of FICA, not the employer's share. IRS Letter 1153 ordinarily allows 60 days to appeal, or 75 days if addressed outside the United States. Payroll tax compliance addresses the underlying reporting and deposit duties.
California Sales Tax Liability Has Additional Statutory Conditions
Revenue and Taxation Code §6829 permits liability after termination, dissolution, or abandonment of certain businesses, including corporations and LLCs. The CDTFA must establish tax-payment responsibility, willful nonpayment, and conditions involving sales tax reimbursement or specified unpaid use tax. Liability covers taxes due during the person's period of responsibility, plus associated interest and penalties. Customer receipts, bank authority, closure records, and payment dates help test those elements. Federal payroll liability follows a different standard.
10 Nov, 2026
