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Thread: Business Tax Discovery Program Letter in the Mail! WTF.

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    Default Business Tax Discovery Program Letter in the Mail! WTF.

    I moved from LA to NYC 5 months ago and I just received this notice in the mail right now. I have absolutely no clue how to handle this ordeal. On my taxes I always stated I was a performer/entertainer. Could anyone please help me out. I have attached a photo of the letter I got in the mail. I'm not sure if the upload photo thing is working? Also will I have to pay a business tax fee since they are contacting me about my 2013 taxes? I already paid my taxes and I think its crazy to be paying even more!!
    tax.jpg

    tax.jpg

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    ^^^ neither of your uploaded photos of the letter you received are 'working'. So all I can do is take wild guesses.

    However, if this concerns 2013 taxes, I can only assume that the 'discovery' request originates with the California Franchise Tax Board. I would further speculate that the Cal FTB is requesting a copy of your 2013 business records in an attempt to discover whether you had out-of-state earnings during 2013 which you did not report to the Cal FTB and did not pay California state income taxes on. California is almost unique in this regard ... i.e. that California state law allows the Cal FTB to tax the incomes of state residents even if the source of ( some of ) that income came from outside the state of California. This is particularly problematic for, say, California dancers who also worked in Vegas.

    Acquaintances in California tell me that this is becoming a more common occurrence as more and more high earning California residents decide to permanently relocate to other states. Or put another way, the Cal FTB will try to extract a final 'pound of flesh' from ( former ) California residents while they are still legally able to do so.

    You really don't have any choice but to respond to this discovery request in a timely manner. Failure to do so will almost certainly result in a full-blown audit by the Cal FTB ... which would now be complicated by a need for you to return to California multiple times to deal with such an audit. And odds are that a full-blown audit by the Cal FTB will also trigger audits by the IRS and the New York state / city tax agency.
    Last edited by Melonie; 06-14-2015 at 06:04 PM.

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    Ooops the photo uploader doesn't seem to be working so I uploaded it to a photobucket account. I guess I am not sure what to do. I wasn't aware we were supposed to have a city business tax certificate either? Does anyone even have that? I'm confused and nervous lol...

    http://i1164.photobucket.com/albums/...psmxohcf3d.jpg

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    Ooops the photo uploader doesn't seem to be working so I uploaded it to a photobucket account. I guess I am not sure what to do. I wasn't aware we were supposed to have a city business tax certificate either? Does anyone even have that? I'm confused and nervous lol...

    http://i1164.photobucket.com/albums/...psmxohcf3d.jpg

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    ^^^ OK this is actually 'better' news than my wild guesses. Although any news related to taxes is always bad !!! This inquiry comes from the City of LA. office of Finance. See

    They are apparently seeking ...

    - the fees required to register / license your ( former ) LA based 'business' for 2013 ( and will also expect the same for 2014 since you still lived in LA for the majority of that year ). This probably involves a couple of hundred bucks per year.

    - an additional income tax percentage being charged on your LA based 'business' earnings for 2013 ( and will also expect the same for 2014 ) in the form of LA city business tax. From what I could find on the internet, the city tax rate for most 'personal service' businesses is 3.56%. So the amount of money involved could be a few hundred dollars to several thousand dollars per year, depending on what your reported earnings levels actually were.

    Thus the type of financial info the city of LA is going to want to see involves how much of your business earnings actually originated within LA city limits, versus how much was earned elsewhere in California or in other states. This will determine how much of your reported income will potentially be subject to the additional 3.56% LA city business tax. If you operated a camming business, 100% of your business activities took place from your LA address thus 100% of your earnings will be subject to LA business tax. However, if you operated an exotic dancing business, only earnings from strip clubs located within the LA city limits should be subject to the additional 3.56% LA business tax.

    If you haven't kept this type of detailed earnings info, the city of LA is probably going to try to collect their 3.56% business tax on all of the income you previously reported to the Cal FTB. As your letter states, the LA office of Finance will gladly calculate the amount of additional tax money they expect you to pay, and send you a bill for it, based on the presumption that ALL of the income you reported to the Cal FTB is subject to LA city business tax.

    What the letter doesn't specifically say is how many years the LA office of Finance is going to 'go back'. If you only started to earn money as an LA resident in 2013, they can't go back further. But if you lived in LA in 2012, 2011 etc. and also reported 'business' earnings to the Cal FTB in 2012, 2011 etc., the LA office of Finance may try to collect business registration / license fees and 3.56% LA business tax for those previous years as well. And there is no doubt that the LA office of Finance will absolutely try to collect registration / license fees and 3.56% business tax on your reported 2014 'business' income ... although this might not happen right away since they have just now received the 2013 Cal FTB tax return based info on which their letter was based.

    There's no question that you'll have to complete and submit the LA business registration form and pay the applicable business registration / license fees.

    So the first question is whether or not you have kept sufficiently detailed business records, and/or have a sufficient appetite for 'stomach acid', to attempt to prove that some portion of your prior year earnings actually originated outside LA city limits ... thus being exempt from the additional 3.56% LA city business tax. Your answer to that question will determine whether you need to follow the first bullet point in the letter, or the second bullet point in the letter ... depending on whether you're willing to let the City of LA apply business tax to all of your reported income, or whether you're going to 'argue' that some portion of your reported income is exempt from LA business tax because it was earned via business activities which took place outside LA city limits.

    As a side note, now I understand better why my accountant advised me to never 'work' in California / LA !!!
    Last edited by Melonie; 06-15-2015 at 04:30 AM.

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    If you received 1099s from business' within LA I am going to guess you are screwed regarding that income. I am guessing that would be the source of their info[searching computer records cross referencing addresses].If you also had 1099's from outside LA you might have leverage to argue about where the money was earned.

    nothing worse than late tax bills ugh

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    I did pay my 2013 taxes and my state taxes in full. This is about business city taxes. But I am so confused with this ordeal and even contacted my cpa with not even a simple response on how to handle this from him... so thank you for responding. I don't have the detailed reports on where I was doing business. They are deleted but I was doing a lot of touring as an escort in 2013... so I would rather pay the business tax fee and walk away but I have no clue how to do so nor did I know you had to have a business city fee . I paid both the state and IRS fee according to my cpa. I was not told of a city fee. I hate these taxes taking what little I have saved but welcome to shitty America. Always a surprise in store. The second page which I didn't attach asked for business info to state you have a business...I have no effing clue what to say I am or even if I am an LLC. I am so lost and nervous .

    Quote Originally Posted by Melonie View Post
    ^^^ OK this is actually 'better' news than my wild guesses. Although any news related to taxes is always bad !!! This inquiry comes from the City of LA. office of Finance. See http://cityapplications.com/business...osangeles.html

    They are apparently seeking ...

    - the fees required to register / license your ( former ) LA based 'business' for 2013 ( and will also expect the same for 2014 since you still lived in LA for the majority of that year ). This probably involves a couple of hundred bucks per year.

    - an additional income tax percentage being charged on your LA based 'business' earnings for 2013 ( and will also expect the same for 2014 ) in the form of LA city business tax. From what I could find on the internet, the city tax rate for most 'personal service' businesses is 3.56%. So the amount of money involved could be a few hundred dollars to several thousand dollars per year, depending on what your reported earnings levels actually were.

    Thus the type of financial info the city of LA is going to want to see involves how much of your business earnings actually originated within LA city limits, versus how much was earned elsewhere in California or in other states. This will determine how much of your reported income will potentially be subject to the additional 3.56% LA city business tax. If you operated a camming business, 100% of your business activities took place from your LA address thus 100% of your earnings will be subject to LA business tax. However, if you operated an exotic dancing business, only earnings from strip clubs located within the LA city limits should be subject to the additional 3.56% LA business tax.

    If you haven't kept this type of detailed earnings info, the city of LA is probably going to try to collect their 3.56% business tax on all of the income you previously reported to the Cal FTB. As your letter states, the LA office of Finance will gladly calculate the amount of additional tax money they expect you to pay, and send you a bill for it, based on the presumption that ALL of the income you reported to the Cal FTB is subject to LA city business tax.

    What the letter doesn't specifically say is how many years the LA office of Finance is going to 'go back'. If you only started to earn money as an LA resident in 2013, they can't go back further. But if you lived in LA in 2012, 2011 etc. and also reported 'business' earnings to the Cal FTB in 2012, 2011 etc., the LA office of Finance may try to collect business registration / license fees and 3.56% LA business tax for those previous years as well. And there is no doubt that the LA office of Finance will absolutely try to collect registration / license fees and 3.56% business tax on your reported 2014 'business' income ... although this might not happen right away since they have just now received the 2013 Cal FTB tax return based info on which their letter was based.

    There's no question that you'll have to complete and submit the LA business registration form and pay the applicable business registration / license fees.

    So the first question is whether or not you have kept sufficiently detailed business records, and/or have a sufficient appetite for 'stomach acid', to attempt to prove that some portion of your prior year earnings actually originated outside LA city limits ... thus being exempt from the additional 3.56% LA city business tax. Your answer to that question will determine whether you need to follow the first bullet point in the letter, or the second bullet point in the letter ... depending on whether you're willing to let the City of LA apply business tax to all of your reported income, or whether you're going to 'argue' that some portion of your reported income is exempt from LA business tax because it was earned via business activities which took place outside LA city limits.

    As a side note, now I understand better why my accountant advised me to never 'work' in California / LA !!!

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    double post lol....

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    Is it possible to avoid something of this nature out of simple lack of knowledge in court? And yes if they charge me a business tax because of this I will pay it if told so!! It's quite shocking to be told I owe more in taxes after I was told what is necessary. I am no business graduate..so I thought state and IRS taxes was it. Is this a LA thing?

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    ^^^ yes this is something imposed by the city of LA upon LA businesses. As an unincorporated independent contractor 'performer', technically speaking you are a sole proprietor business entity. As such, if you can't prove that a portion of your 2013 earnings came from sources / locations outside of LA, the city is going to hit you with their 3.56 % business tax on every dollar of income you reported to the Cal FTB.

    If you don't have the necessary records, and you don't wish to claim that a portion of your reported income came from sources outside of LA, the next step is pretty clear. Respond to the first bullet point in the letter by filling out the application included with that letter and mailing it back to the LA Office of Finance. Once they receive your application, they will calculate the amount of additional money which they expect you to pay and send you a 'bill' for that amount. Once you receive their 'bill' you'll find out if they're expecting $1,000 or $10,000.

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    my city charges an additional 1% for any income earned in the city limits - it may take you some time but - if you can go through your hotel receipts and come up with a dollar figure for what you earned outside of the city limits you can save yourself some money - do the best you can - also be sure to tell them in writing that you are no longer in the city an fill out any documents required to dissolve your activity there

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    My dog was sitting on my computer so I am not sure if my post went through. I would rather pay the fee for 2013 and 2014 than risk an audit. Too much chaos with audits I've heard. Here is a link to my 2nd second page of the letter I received. I have no idea how to fill it out or if I should just send a letter explaining I have moved ?

    http://i1164.photobucket.com/albums/...pscdbfa5gl.jpg

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    ^^^ explaining that you have moved will stop the city of LA from bothering you about 2015 business tax, but will do nothing to stop them from collecting on LA city business taxes for 2014, 2013, 2012, 2011 ... i.e. however many years you were doing business from an LA address, potentially all the way back to 2007 per the form you received.

    They also expect you to report the 'gross receipts' of your business and not just the net income which federal and state income taxes are based on ... a number which you'll have to pick off the Schedule C's which your accountant filed with your past years' federal and Cal state tax returns ( it's the dollar amount shown at part 1 line 1 of the Schedule C ).

    This sucks because the 3.56% LA business tax apparently applies to every dollar which your business RECEIVED, and does not give 'credit' for legitimate business expenses incurred for travel, for hotel rooms, or for any other business reason. In real world terms, this makes the 3.56% tax on gross receipts equivalent to a ~5% additional tax on business income.

    Because of this, I have to agree with Nikki Fox that anything you can do to 'argue' that a significant portion of your previous years' business receipts / earnings is going to save you significant money on LA business taxes.

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    Thank you so much for your responses. I have only been an independent contractor since 2013 which is why they are contacting me about that year. I was curious how I should approach their question when I say I am an entertainer which is stated on my tax returns. How should I name my business if they ask me?

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    ^^^ in the exact same way your accountant named your business on the Schedule C's.

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    Am I an individual or an LLC? It also asks from the name of my business so would it be okay to just put my real name? I'm sorry if this sounds really stupid but I am terrible with understanding taxes and the business side of things lol.

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    Also will they be giving me a larger business tax fee since I have not paid the business tax fee when it was due? I wasn't even aware that such a thing exists.

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    If you had formed an LLC or S-Corp you would certainly know about it !!! You are an ( unincorporated ) individual business operator, and as such must list your real name, your former LA address, and your own SS#, on the application.

    As to the City of LA charging penalties and/or interest, you'll find that out when they send you the 'bill'.


    I wasn't even aware that such a thing exists.
    Not meaning to be facetious, but the City of LA probably doesn't care one bit ... they just want to hit you up for as much money as they possibly can while they can. After all, from the City of LA's viewpoint, you have already left the city / state - so they really don't care if they pi$$ you off.

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    Sorry again, so would I be an individual? I have no clue what I filed I just sent my expenses and income to my cpa and that was it. He did the work for me? I feel a bit stupid ! Also I read that my full name would now be disclosed to the public with my address as a business owner. How come other ladies who worked in LA for many years as an escort are not experiencing this chaos? Is this abnormal for LA..because I see 0 benefit in working in LA after the taxes I have had to pay. It's close to the amount it cost to buy my car .

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    so would I be an individual
    If you don't remember having to sign a pile of corporation forms to create an LLC or S-Corp, then yes you are an unincorporated individual.


    Also I read that my full name would now be disclosed to the public with my address as a business owner.
    Yup as an unincorporated individual, the name and address that will appear on your business registration will be your own. The business 'license' becomes a matter of public record, thus available for inspection by just about anyone who is willing to show up at LA city hall.


    How come other ladies who worked in LA for many years as an escort are not experiencing this chaos?
    All I can say is that the City of LA is basing their business registration / business tax collection 'crusade' on information provided them by the Cal FTB ... which in turns comes from California state tax returns filed by California residents. If those escorts didn't file a tax return, then the Cal FTB wouldn't know they were conducting a business with a City of LA address, thus their business activities would not have been reported to the City of LA, thus the City of LA would not have sent them the 'discovery' form.

    Similarly, if those LA escorts had formed an LLC or S-Corp, the income they reported on their personal state tax returns would 'appear to be' employee salary income from a ( out of state ? ) corporation. As such, the Cal FTB computers would have most likely assumed that they were employees not business operators ... and thus excluded them from the list of LA based tax returns with reported 'business' income which the Cal FTB forwarded to the City of LA to start their 'crusade'.


    I see 0 benefit in working in LA after the taxes I have had to pay. It's close to the amount it cost to buy my car
    New York City isn't likely to be much better in the tax dep't. Federal tax liability will be the same. State tax liability is roughly the same for California and New York ( actually NY is about 1 percent less ). New York City levees its own income tax ... but it's based on individual personal income not total business gross earnings, and it's also integrated into the NY state tax return ( so there's no way someone living in NY City won't know about its existence ). When I was living and working in Manhattan, my total SSI + federal + state + city income tax rate on my dancing income was around 40% ( before I formed my own S-Corp, anyhow ) !!!
    Last edited by Melonie; 06-17-2015 at 02:24 PM.

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    So are they going to charge me even more money since it was never paid for the year 2013 and 2014?

    Also for the upcoming 2015 year if I were to file as an LLC would I not have to pay a business tax then?

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    Default Re: Business Tax Discovery Program Letter in the Mail! WTF.

    So are they going to charge me even more money since it was never paid for the year 2013 and 2014
    You're actually asking two different questions. They are going to charge you the 3.56% LA business tax which was due on your LA based 2013 ( and 2014 ) income which you did not pay on time. They are going to charge you LA business license fees for 2013 ( and 2014 ) that you did not pay at all.

    As to whether they choose to also add interest / penalty charges for failing to file / pay on time, you'll find out when you receive their bill.

    For 2015 you are no longer living / earning money in LA ... therefore your income is no longer subject to the City of LA business tax ( regardless of whether you continue your business as an individual or choose to form an LLC or S-Corp ). Instead your 2015 income will be subject to NY City personal income tax and NY state personal income tax.

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