How to Get Audit Penalties Abated with the CDTFA

If you've been audited by the California Department of Tax and Fee Administration (CDTFA) and received a hefty assessment, chances are that the final amount includes not just tax—but also penalties and interest.

The CDTFA is notorious for stacking penalties on top of already large sales tax debts. In many cases, penalties account for 20% to 50% of the total bill. But here’s what most business owners don’t know: you may be able to get those penalties reduced—or removed entirely.

At Boulanger CPA and Consulting PC, we focus on sales tax audit defense in California. We help businesses fight unfair CDTFA assessments and pursue penalty relief options that many taxpayers don’t even know exist.

WHAT PENALTIES DOES THE CDTFA ASSESS?

Common CDTFA penalties include:

WHEN CAN YOU REQUEST PENALTY ABATEMENT?

Penalty abatement can be requested:

Before the audit is final

After the audit assessment becomes final, through a relief request

As part of a settlement negotiation with CDTFA or during the appeals process

You’ll need to show that the penalty was inappropriate, excessive, or that you had reasonable cause for the underlying issue.

PENALTIES YOU  CAN’T REMOVE EASILY

Interest is generally not abatable (unless due to CDTFA delay)

Tax due is not removable unless you win at appeal or protest

Fraud penalties are extremely hard to remove unless the fraud allegation is dropped

VALID REASONS FOR PENALTY ABATEMENT

The CDTFA may grant relief if:

1. You Had Reasonable Cause

You made an honest mistake, had a system error, or relied on professional advice.

Examples:

Bookkeeper filed wrong return

POS system misreported sales

Pandemic-related business disruption

Inherited recordkeeping mess from a prior owner

2. You Acted in Good Faith

You filed returns or made payments late, but were not intentionally avoiding tax.

3. First-Time Offense

You have no prior audit history or have filed properly in the past.

4. Natural Disaster or Emergency

Fire, flood, medical emergency, or other events outside your control disrupted operations.

HOW TO FILE A CDTFA PENALTY ABATEMENT REQUEST

To request penalty relief, you can:

1. Submit Form CDTFA-735 – Request for Relief from Penalty and Interest
   
   
2. Include a detailed explanation of why the penalty should be removed
   
   
3. Provide supporting documentation (emails, reports, contracts, system logs, etc.)
   
   
4. Have a CPA or attorney submit the request on your behalf
   
   

The CDTFA may contact you for more information or issue a written response.

BONUS TIP: USE THE “RELIEF FROM FINALITY” TOOL IF NEEDED

If your audit has already gone final and you failed to respond in time, you may still be able to:

• File a petition to reopen the case
  
  
• Request relief from finality penalties under CDTFA's internal guidelines
  
  

We’ve used this successfully in cases where clients missed notices or were improperly served.

REAL EXAMPLE – PENALTY REDUCED FROM $42,000 TO $4,200

A client in Orange County was assessed nearly $130,000 in sales tax, penalties, and interest after a CDTFA audit. We challenged the 10% negligence penalty and proved that the discrepancy was due to a POS error. The CDTFA abated 90% of the penalty—saving the client over $37,000.

This type of case often requires negotiating a CDTFA audit balance with state officials, ensuring the outcome is manageable for the business owner.

LOCAL HELP WITH CDTFA PENALTY RELIEF

We’ve helped business owners in:

• Orange
  
  
• Santa Ana
  
  
• Costa Mesa
  
  
• Anaheim
  
  
• Riverside
  
  
• San Diego
  

…and throughout California. Many of these cases also involve overlapping issues like California FTB penalty relief options, which we evaluate alongside CDTFA strategies.

WANT TO REMOVE CDTFA AUDIT PENALTIES? LET’S TALK.

You don’t have to accept the CDTFA’s penalty numbers as final. Let us evaluate your case and file a strategic relief request on your behalf.

For more strategies and insights, you can always explore more in Defend What’s Yours, our resource hub for California business owners facing tough tax audits.