What Are the Differences Between the Federal System and the State of California?

What Are the Differences Between the Federal System and the State of California? So the IRS tends to get a lot of flack but the federal system for tax is actually pretty well developed and here's why the IRS is an administrative agency so as an administrative agency it makes rules interpreting the way that it's going to enforce the tax law and it makes rules to govern what will happen if you get into a dispute with the IRS so the IRS is essentially a rulemaking Authority but in addition to the IRS you've got a Tax Court and what the Tax Court does is the Tax Court is a judicial system you've got judges it's a court and you've got people in all 50 states who are litigating tax issues in court and there's a series of judicial opinions that come out and what happens is those judicial opinions function as a check against the IRS so the IRS isn't allowed to just ignore a judicial opinion so what happens is you've got this system of pools that's created on the administrative level and then you've got this judicial check which functions against those rules so you've got this really well-defined harmony between the administrative system and the judicial check the system that operates and enforces the IRS rules and you can see that and a lot of the procedure that's come out of the IRS level is it's very well shaped by the courts in California you don't have as good of a judicial system number one if you've ever been to court in California you know how difficult it is to get in there in.

The first place well if you can imagine it's even more difficult to get in on it case the California Constitution create creates some barriers to get tax cases in the Superior Court they take a long time to get through and then you're dealing with a judicial body that doesn't have a whole lot of tax cases and doesn't have a lot of experience in deciding them now California developed this thing called the offices tax appeals which is supposed to function as a tax court in California it replaced the Board of Equalization back in 2017 but it's a relatively new body and the decisions that have come out of there have been number one largely pro-government and number two they haven't served as as good of a check on the administrative agencies in California so the net effectiveness is you get these administrative tax agencies and you get the people who write the policy for tax law and tax procedure in California and those people are doing I believe they're doing a really good job they've got some really smart people in Sacramento who are doing the best to write laws and write procedures that will impact the state of California and will impact the people here and try to do so fairly even-handedly it's not completely have a level playing field but it's they try and be as fair as they can.

The problem is is once policy comes out of Sacramento then you've got all these district offices that are located all over the state of California and what happens is you get different people running those offices and so the interpretation of the policy that's coming out of Sacramento gets interpreted in a variety of different ways we've had cases here at the firm when we'll take we'll have two clients that run exactly the same business or virtually the same distance and are dealing with an identical situation it'll go through two separate district offices and you'll get two different results and it's frustrating it's frustrating for our clients because the position that of a lot of clients take is we just want to do the right thing we just don't know what the right thing is and so that would that's what makes California and state tax law really challenging and that's why it's so frustrating for practitioners and for clients equally is because the rules don't get forced and it's consistently across the board so that's to highlight one of the big differences between the federal system and the state tax system.


Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law