The time value of money . The current rate for personal income tax underpayments and overpayments is 3 percent . The current corporation underpayment rate is also 3 percent , and the current corporation overpayment rate is zero . In all fairness , that is cheap money and may be a reason for delaying an audit . But , the FTB ’ s interest dates for personal income tax and corporate underpayments automatically reset every six months , so watch for changes .

The FTB ’ s interest rates in the past have been as high as 18 percent ( in 1982 ). Also , don ’ t forget that even if the FTB issues an NPA , no payment is required while a timely Protest of that NPA is pending ( although interest continues to accrue ).

Confirmation bias is your enemy . Confirmation bias is the tendency of an individual to favor and process information that confirms or strengthens their existing beliefs . If you sense an auditor already has

decided the case against you , there is no reason to give them additional time to further strengthen their case while interest continues to accrue . It is probably time to have the NPA issued , file a Protest and pick up the case at Protest with a different , fresh and hopefully less-biased audience — but , see time value of money , above .

Finally , while audits often can be contentious , unpleasant and seem personal , it does not have to be that way . FTB auditors are tax professionals and deserve to be treated as professionals . There are many legitimate situations where an auditor will need an extension of the statute and will work with a taxpayer to achieve that end . In many cases , it is also in the interest of the taxpayer to extend the statute in some manner . On the other hand , you do not want to grant a one-year statute waiver only to find the auditor then turns to another case in their inventory with a shorter statute , only to return to your case nine months into the waiver period — often to seek another waiver .

Eric J . Coffill is senior counsel at Eversheds Sutherland LLP and a member of the CalCPA Committee on Taxation . You can reach him at ericcoffill @ eversheds-sutherland . com .

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