CDTFA Audit vs. IRS Audit – What’s the Difference?
If you're facing a sales tax audit from the California Department of Tax and Fee Administration (CDTFA), you may be wondering how it compares to an IRS audit. While both are government examinations of your records, the stakes, procedures, and strategies are completely different.
Here's what you need to know about how CDTFA audits differ from IRS audits — and why it's critical to handle them differently.
1. CDTFA Audits Focus on Sales Tax
The biggest difference is the type of tax being audited:
- CDTFA enforces sales and use tax in California (not income tax)
- IRS enforces federal income tax and payroll-related issues
That means:
- CDTFA audits look at sales receipts, POS data, and taxable vs. non-taxable sales
- IRS audits review income, deductions, and reported federal income
If your issue is sales tax-related, an IRS rep may not be qualified to help you — and vice versa.
2. CDTFA Uses Estimation Methods
CDTFA auditors are more likely to use assumptions like:
- Industry markup percentages
- Test periods or sample months
- Estimates based on purchases or inventory records
This means you could be hit with a large balance even if you kept reasonable books — especially if a few records are missing or out of sync.
IRS audits are usually more document-based and formulaic, while CDTFA audits rely more on inference and statistical modeling.
3. CDTFA Audits Can Escalate Fast
CDTFA has the power to:
- Issue assessments quickly
- File liens and levies without going to court
- Suspend your seller’s permit
- Enforce personal liability if you’re the owner or officer
IRS collections can be aggressive, but CDTFA is often faster — and more disruptive to daily operations.
4. The Record Requirements Are Different
CDTFA wants:
- Sales tax returns
- POS reports / Z-tapes
- Cash register summaries
- Bank records for deposits
- Resale certificates and exempt sales documentation
IRS wants:
- Federal returns (1040, 1120S, etc.)
- W-2s, 1099s, Schedule C
- Expense receipts and logs
If you mix up the two, you may not provide what the auditor actually needs — or you may give them too much.
Bottom Line: You Need a CDTFA-Specific Strategy
CDTFA audits are:
- Faster
- More assumption-based
- Focused on sales tax
- Harder to appeal if you wait too long
Even if you’ve handled an IRS audit before, a CDTFA audit is not a DIY situation. It requires a state-specific defense approach.
Related Blog Posts (Internal Links)
- What Triggers a CDTFA Sales Tax Audit in California
- How to Respond to a CDTFA Audit Letter in California
- Can You Negotiate a CDTFA Audit Balance
Schedule a California Sales Tax Audit Strategy Call
At Boulanger CPA and Consulting PC, we represent California business owners in CDTFA audits every day — and we know how to reduce assessments and protect your business.
📍 Based in Orange County – Serving All of California
Call:
657-218-5700
Email:
marc@boulangercpa.com
Book Your CDTFA Audit Consultation Now
Learn more on our California Sales Tax Audit Defense page
Frequently Asked Questions
What is the main difference between a CDTFA audit and an IRS audit?
A CDTFA audit focuses on sales and use tax compliance, while an IRS audit targets federal income tax reporting. Each agency reviews different types of transactions, records, and liabilities.
Which audit is more aggressive: CDTFA or IRS?
CDTFA audits are often more aggressive in terms of assumptions, especially when sales records are missing. IRS audits tend to be broader but may allow for more negotiation depending on the issue.
Can I be audited by both CDTFA and the IRS at the same time?
Yes. It’s not uncommon for both agencies to audit the same taxpayer, especially if they share information or see red flags in different areas. Each audit is handled independently.
What records does the CDTFA focus on?
The CDTFA examines sales tax returns, POS reports, bank statements, Z-tapes, purchase records, and exemption certificates to determine underreported sales or use tax liabilities.
Do I need a CPA for a CDTFA or IRS audit?
Yes. A CPA can protect your rights, respond strategically, and help you avoid common audit mistakes. Representation is especially important when documentation is incomplete or liabilities are high.
📣 About the Author
Marc Boulanger, CPA is the founder of Boulanger CPA and Consulting PC, a boutique tax resolution firm based in Orange County, California and trusted by high-income individuals and business owners across Southern California.
He is the author of Defend What’s Yours: A California Taxpayer’s Guide to Beating the IRS and FTB at Their Own Game, available now on Amazon. The book offers a step-by-step plan for resolving IRS and FTB tax debt without losing your business, your home, or your peace of mind.
With over a decade of experience resolving high-stakes IRS and State tax matters, Marc brings strategic insight to complex cases involving wage garnishments, bank levies, unfiled returns, and six-figure tax debts. He is known for helping clients reduce or eliminate tax liabilities through expertly negotiated settlements and compliance plans.
Marc is a Certified Public Accountant licensed in California and Oklahoma and holds the designation of Certified Tax Representation Consultant. He is a member of the American Society of Tax Problem Solvers (ASTPS) — the national organization founded by the educators and practitioners who have trained thousands of CPAs, EAs, and tax attorneys in IRS representation strategy.
Every case is handled with discretion, proven methodology, and direct CPA-led representation — not call center scripts.
📍 Learn more at www.orangecounty.cpa or call (657) 218-5700.
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