Discussion of Common Tax Audit Issues Affecting California Corporate Taxpayers1
By E. Scott Ewing, Benjamin Elliott & Natasha Ng2
In its April 2014 issue of Tax News, the California Franchise Tax Board ("FTB") identified the most common franchise/income tax audit issues currently affecting corporations.3 In this article we restate the common audit issues identified by the FTB, summarize the technical aspects of each issue and provide general insight regarding the potential prevalence of such issues in future FTB audits, including a discussion of some of the recent and contemplated changes in the California Revenue and Taxation Code and California Code of Regulations, title 18 adopted thereunder that may affect these issues.4
The FTB identified the following four areas as some of the most common audit issues affecting corporations: (1) Cost of Performance and Sourcing of Intangible Sales; (2) Sales Factor and Gross Receipts; (3) Abusive Tax Shelters; and (4) Credits.
I. COST OF PERFORMANCE AND SOURCING INTANGIBLE SALE