Can You Negotiate a CDTFA Audit Balance?
If your California sales tax audit just ended — or you’re in the thick of one — you may be staring at a massive assessment from the California Department of Tax and Fee Administration (CDTFA). The good news? You may not have to pay the full amount.
In many cases, the CDTFA overestimates what you owe based on assumptions, flawed sampling, or missing records. You can negotiate a lower balance — if you know how to challenge the audit results properly.
Here’s how the process works.
Why CDTFA Assessments Are Often Too High
The CDTFA uses aggressive audit methods to project liability, especially when records are incomplete. This often includes:
- Markup analysis based on your industry (even if your costs differ)
- Observation days that don’t reflect typical activity
- Sampling that applies a small set of records to multiple years
- Estimated taxable sales based on purchases or inventory
These shortcuts can produce assessments that don’t reflect your actual business activity — and you have the right to dispute them.
Read more: what triggers a CDTFA sales tax audit
How to Dispute an Audit Balance
You can challenge a CDTFA audit by:
- Filing a petition for redetermination (within 30 days of the Notice of Determination)
- Providing detailed records and rebutting audit assumptions
- Arguing for lower error rates or more accurate sampling
- Requesting an appeals conference with a CDTFA supervisor
Most businesses don’t know how to argue these points — or give up because the process seems too complex. That’s where experienced representation makes a huge difference.
Sometimes, federal issues surface alongside CDTFA assessments. For example, if the IRS questions your records, you may also need guidance on responding to an IRS audit assessment.
Learn More: How To Respond to a CDTFA Audit Letter in California
Common CDTFA Audit Disputes
| CDTFA Claim | Our Response Strategy |
|---|---|
| Markup rate too high | Show actual cost structure + vendor docs |
| Incomplete cash records | Provide supplemental data or reconciliations |
| Sample month not representative | Dispute selection and propose alternative periods |
| Assumed all sales were taxable | Prove exempt sales with invoices or resale certs |
Can You Settle With an Offer in Compromise?
If you truly can’t afford to pay, the CDTFA does have an Offer in Compromise (OIC) program — separate from the IRS. You may qualify if:
- You’ve closed your business or sold it
- Your income and assets are limited
- You don’t have the ability to full-pay within a reasonable period
An accepted OIC can reduce your liability dramatically, but the application process is complex. We help clients determine if they qualify and prepare strong OIC packages.
At this stage, many business owners also look for IRS tax relief near you to coordinate a defense strategy that covers both state and federal obligations.
Bottom Line: Don’t Just Accept the Numbers
You do not have to accept a CDTFA audit bill at face value. There are often legal, factual, and procedural grounds to reduce what you owe — but you must act fast and follow the proper channels.
Schedule a CDTFA Audit Review Consultation
At Boulanger CPA and Consulting PC, we provide proven defense strategies for California business owners — from audit disputes to settlement negotiations. To protect yourself fully, explore more in Defend What’s Yours — our resource on fighting back against tax agencies.
📍 Based in Orange County — Serving All of California
Call:
657-218-5700
Email:
marc@boulangercpa.com
Book a CDTFA Audit Review Today
Want more info? Visit our CDTFA Audit Defense page to learn how we help reduce liabilities after an audit.
Frequently Asked Questions
Can I negotiate the results of a CDTFA audit?
Yes. If you disagree with the auditor’s findings, you can provide additional documentation, request revisions, or appeal through CDTFA’s appeals process.
What if I can’t pay the full CDTFA audit balance?
You may qualify for a monthly installment agreement, allowing you to pay the balance over time while avoiding aggressive collection actions.
Can CDTFA penalties be reduced?
Yes. Penalties may be reduced or removed if you show reasonable cause, such as illness, disaster, or reliance on incorrect professional advice.
Is interest negotiable in a CDTFA audit?
No. Interest accrues on unpaid balances by law and generally cannot be waived, except when caused by CDTFA delays or errors.
Can I settle a CDTFA audit balance for less?
Yes. Through the Offer in Compromise program, some taxpayers may settle for less if they demonstrate inability to pay the full liability.
What if I believe the audit is unfair?
You can file an appeal with CDTFA’s Office of Tax Appeals (OTA). Professional representation strengthens your case and helps present proper documentation.
Can a CDTFA audit trigger other tax problems?
Yes. CDTFA findings may be shared with the IRS or Franchise Tax Board, which could lead to additional tax assessments or audits.
Should I hire a professional to negotiate with CDTFA?
Yes. A professional understands CDTFA procedures and can negotiate penalty relief, settlements, or appeals to reduce your overall liability.
📣 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.
Marc The CPA's Tax Blog
