Tag Archive for: general contractor

What do you need to know about California Franchise Tax Board


California residents and business owners in the state who are audited by IRS have a responsibility to report their IRS audit findings to the California Franchise Tax Board.  While IRS will send the results of your audit to the state agency, it is in your best interest to self-report the results of your audit and prevent the possibility of a CTFB review of your federal audit results. 

Typically, Internal Revenue Service (IRS) audits back three years, but that time frame can be extended under various circumstances. In California specifically, IRS has an unlimited time frame to audit records if:

  • You never filed taxes.
  • Tax forms are found.
  • Tax forms are found incorrect. 

Simply put, if IRS wants to extend an audit timeframe, they can and will find a way to extend the audit time period. 

What is the role of the California Franchise Tax Board?

Franchise Tax Board (FTB) collects the state’s personal income taxes and can audit back four years of tax returns. According to the FTB, their mission is to, “help taxpayers file tax returns timely, accurately, and pay the correct amount to fund services important to Californians.” 

If an IRS audit assessment concludes with findings of an underpayment, there’s more to be done for the audited party than simply agreeing and paying fines. After an audit, CA Franchise Tax Board (FTB) must be notified of the claims within six months. If the agency is not notified, they will find out, it’s just a matter of time. It could take a couple of years for FTB to find they were not notified of IRS audit findings. 

While IRS will report audit findings to FTB, the agency is severely backlogged and often does not report the results of an audit within the 6 month window. It is in a business owner’s interest to self report because the state agency will re-open the audit to ensure that they were not shorted in the audit collection.  By reporting your audit findings you can save yourself time and effort of another review of your tax filings. 

Failure to notify FTB within the six-month time frame does not terminate the California Statute of Limitations. This means FTB no longer has a limited time frame to initiate legal proceedings to investigate your case. Legally, FTB can send tax bills to your business 4 or more years later if they are not notified within the six-month window. 

CA FTB can return years later to examine income assessed during the past IRS audit, and carry it over as money owed to the State of California. Notifying FTB within the six-month window of an IRS audit closure ensures you don’t waive any potential rights you have to petition or fight that assessment. 

The benefits of notifying FTB of IRS audit closures are: 

  • Even if you do lose with the IRS  you potentially could provide documents and work through those issues with the FTB. 
  • Penalties and interest accrue over time. Assessing if you really think you owe early on helps avoid further costs. 

Best practice during audits is to find a certified tax attorney to represent you. If either you or your attorney receives notice from FTB within six months, or even if you don’t hear from FTB, you can file an amended return or notify the agency and file a petition to dispute results during IRS audit findings. 

If FTB requests an audit extension, agreeing to the requested extension looks better and gives them less reason to think there is fraudulent or suspicious activity.  Denying an extension of time request can actually raise suspicion or trigger assumptions even if there isn’t any suspicious activity occurring.

FTB and IRS audits are conducted in a very similar way. After audit findings, you can dispute results with the California Office of Tax Appeals (OTA). Appealing with FTB themselves is more difficult. 

Learn more about California Franchise Tax Board in the full Forbes article below. 

Article Review: Tougher than IRS? California Franchise Tax Board

“When it comes to taxes, most people think about the IRS. But if you live or do business in California, state taxes are a big piece of what you pay. California does a good job of aggressively drawing people into its tax net of high individual (13.3 percent) and business (8.84 percent) tax rates. Add the state’s notoriously aggressive enforcement and collection activities, and it’s a perfect storm.

The state’s tax system is complex too. Rather than adopting federal tax law wholesale like many states, California’s legislators pick and choose. California adopts some federal rules but not others, so its tax law has many nuances that do not track federal tax law. Even California’s tax agencies and tax dispute resolution system are unusual. Combined with its unique tax statute of limitations, the situation can be downright scary.

Take California’s long tax audit period. The basic IRS statute of limitations is three years. In some cases, the IRS gets six years, not three. But barring those kinds of exceptions, the IRS usually has three years once you file a return to audit. The California Franchise Tax Board administers California’s income tax.

The FTB gets an extra year, so it has four years, not three. That sounds simple, just an extra year, but not so fast. Say that you are involved in an IRS audit, but the IRS has not yet issued a notice of deficiency (also called a 90-day letter, which must come via certified mail).

You may want to drag your feet in the IRS audit, to try to put you outside California’s four-year reach. Hey, with a little delay, maybe you can outrun California’s four-year statute, you might think. Will that protect you from California’s follow-along ‘‘me, too’’ request for money?

Unfortunately, no matter how long your IRS dispute goes on, California can always piggyback and collect its share. Several things can give the FTB an unlimited amount of time. California, like the IRS, gets unlimited time to come after you if you never file an income tax return.

The same goes for false or fraudulent returns. Those are obvious, but there are other dangers, too. In some other, less intuitive cases, California also gets unlimited time to audit.

Suppose that an IRS audit changes your tax liability. Perhaps you lose your IRS case, or you just agree with the IRS during an audit that you owe a few more dollars. You might simply sign and send back a form to the IRS. In that event, you are obligated to notify the California FTB within six months.

If you fail to notify the FTB of the IRS change to your tax liability, the California statute of limitations never runs. That means you might get a tax bill 10 or more years later.

Yes, it happens. California’s FTB often comes along promptly after the IRS to ask for its piece of a deficiency. But regardless of whether California gets notice of the adjustment from the IRS, California taxpayers must notify the FTB and pay up. If you forget, they usually find you at some point. This coattails concept in California law applies to amended tax returns as well.

If you amend your IRS tax return, California law requires you to amend your California return within six months if the change increases the amount of tax due. If you don’t, the California statute of limitations never expires.

With all of those rules, should you ever voluntarily give the FTB more time to audit you? Surprisingly, yes. Again, the basic rule is that the FTB must examine your tax return within four years of when you file.

But like the IRS, the FTB sometimes will contact you, asking for more time. The FTB may send a form, asking you to sign it to extend the period of limitations. This part of California’s system operates pretty much like its federal counterpart.

Some taxpayers just say no, likening an extension to allow the government more time to audit to giving a thief more time to burglarize your home. But with the IRS or FTB, saying “no” usually triggers an assessment, generally based on adverse assumptions. So, you should usually agree to the extension, which you may be able to limit to specified tax issues, or to limit the added time.

How about California audits and tax disputes? They tend to be harder to resolve than IRS ones, on average. There are lots of taxes too. California has income taxes, franchise taxes, sales and use taxes, property taxes, and excise taxes. There are nexus issues, withholding taxes, tough residency rules, and more. If you have an IRS dispute, you can fight it administratively with the auditor and at the IRS Appeals Office.

If necessary, you can go to U.S. Tax Court, where you can contest the taxes before paying before a judge who decides only tax cases. Alternatively, if you are willing to pay the tax first, you could proceed to the U.S. Court of Federal Claims, or U.S. District Court. Many states have a state tax court, but California does not. For decades, it had the State Board of Equalization (SBE), a five-member administrative body—the only elected tax commission in the U.S.—that functioned much like a court.

It was a quirky and controversial system. But all of that changed in 2017 when California legislators enacted the Taxpayer Transparency and Fairness Act of 2017, which created the California Office of Tax Appeals (OTA). The OTA has jurisdiction for appeals related to taxes administered by the California Department of Tax and Fee Administration (CDTFA) and the Franchise Tax Board (FTB). That includes personal income taxes, corporate franchise taxes, sales and use taxes, LLC taxes and fees, even gas tax and other excise taxes.

But before you get to the OTA, you’ll be dealing with California’s tax agencies, either the CDTFA or the FTB. Both have audit processes, and both have administrative processes that allow taxpayers to resolve differences over the proper assessment of tax and the imposition of any penalties. If your audit is with the Franchise Tax Board over your income taxes, the process isn’t too different from federal. The auditor will eventually write up what he or she thinks, and most likely will propose some additional taxes.

If you disagree, you should write to the FTB and go through the FTB’s appeals process. But compared to the IRS Appeals Office, the FTB’s appeals process does not seem to resolve too many cases, so you may end up having to go to the OTA. The FTB also has programs that allow settlement, offers in compromise, and payment plans.

However, once again, those generally do not work as well as their IRS counterparts. In the event a dispute persists after the CDTFA or FTB make a final tax determination, you can appeal to the Office of Tax Appeals.

The OTA is an independent office that is separate from the state’s tax agencies. The OTA is dedicated solely to the adjudication of California tax disputes. An appeal to OTA presents the final opportunity for taxpayers to resolve their tax disputes with the state’s tax agencies administratively, without going to court.

Appeals may be made by a letter request to OTA, accompanied by any supporting documents. You can ask for an oral hearing, which is usually a good idea. You can even bring witnesses who can testify before the OTA.

Prior to the hearing, taxpayers should provide all relevant documents to OTA and may ask, or be asked, to participate in a pre-hearing conference. Each tax appeal is heard by a panel of three administrative law judges (ALJs), each of whom has significant experience with tax law.

One ALJ will be designated as the lead ALJ for the purposes of the hearing, but every panel member will participate equally in the hearing, deliberations and decision. Generally, the ALJ panel will prepare a written decision within 100 days of the hearing, along with information about further steps that may be taken if the taxpayer disagrees with the OTA’s decision.

If you do not agree with OTA’s decision on a case involving a tax assessment, you can pay the tax liability and then file a claim for refund with the FTB. If the FTB denies your claim, you can file an action against the FTB in California Superior Court within 90 days of the denial of your claim for refund.

If you do not agree with OTA’s decision on a case involving a denial of a claim for refund, you can file an action against the taxing agency in California Superior Court within 90 days of OTA’s decision becoming final. All actions filed in Superior Court are reviewed de novo by the court, rather than being based on the OTA decision. Cases coming out of the CDTFA follow the same procedure.”

Learn more

Have you received an audit letter from CA FTB or IRS? Learn more about what your audit response letter should include, tips to navigate a response letter, and what you should and shouldn’t do in this article, “How to Respond to IRS Letter 6323.”


What is the California Franchise Tax Board?


What Every Business Owner Needs to Know:

Starting a business rarely begins with a strategic checklist of all of the resources necessary to run and scale successfully. Rather, many, if not most businesses start because the founder has a passion or skill that is exceptional and in-demand and they grow from there.  Because of this, many business owners find themselves at strategic points in their growth with gaps in resources that are easily avoidable with a comprehensive simple checklist of what every business owner needs to know. 

Take stock of the resources you currently have and compare them to this checklist to see if you have gaps, overlaps that can drain resources, or if you’ve overlooked an important area of expertise. After all, an ounce of prevention is worth a pound of cure.

Your Checklist


You’ll need someone to keep track of your expenses and invoices.  Whether that person is in-house and manages your accounts receivable/ accounts payable, or outsourced and sends monthly reports on your cash flow status, a bookkeeper is essential to any business’ operations. 

A great San Diego based resource for bookkeeping is BooXkeeping. This company, started by Max Emma provides bookkeeping services for small to medium-sized businesses. They are a virtual service that serves a variety of industries. 

Certified Public Accountant

Gone are the days of the once-a-year call to a CPA to file taxes.  With great power comes great tax complexity. A once a year conversation is not going to cut it.  You need a CPA who is invested in your holistic business financial health.  

Mid-sized CPA firms such as Encore Partners, and Eakes and Company provide financial insights and strategies beyond simple tax planning and preparation.  Finding a CPA who understands your industry and special situation is a great addition to your team and your financial wellness as a company. 

Payroll Provider

At a certain point, Quickbooks is too simple for your company’s payroll needs. Getting a great payroll provider sounds easy, but with the behemoths dominating the industry many business owners feel they’re just a number.  Payroll is crucial because, as much as you may work because of the love you have for the company, your employees work at least in large part because you pay them.  

Some San Diego resources for payroll include Coastal Payroll and PayrollHUB. Both provide payroll services and human capital management services to let you stay focused on running your business. 

Insurance Provider

Business insurance is complex, expensive, and consequential.  From cyber liability to the industry-specific coverage you may need if you transport goods or provide services across state lines or internationally, proper insurance coverage is essential. 

Finding an insurance company that specializes in commercial coverage and will reach out to you more often during renewal time is not that easy.  From health insurance to EPLI coverage, insurance is a large part of the benefits you’ll offer to employees, and the protection you need for your business. 

Consider a small to mid-sized firm, some we know of here in San Diego are:

  • Benchmark Commercial Insurance offers commercial and personal line insurance for business owners and individuals with complex structures. 
  • Morrison Insurance creates various insurance programs for small to midsize businesses to help you find the greatest value for your dollar. 
  • Competitive Edge specializes in high-risk and construction insurance. The founder, Brenda Jo, is passionate about believing that you are more than the history of your insurance claims 
  • SBMA Benefits provides affordable ACA compliant Minimum Essential Coverage for Applicable Large Employers.

Human Resources

Human resources… Aren’t all resources human resources?  When it comes to compliance, having Human Resources services in-house or fractionally can make the difference between a bad hire becoming a lasting issue and being a blip on your company radar.  

The right HR provider can partner with your company to create manuals, handbooks, and pieces of training to keep you compliant. They also assist in creating operational structures to support healthy company culture and more. 

San Diego HR resources we know are: 

  • Culture Works operationalizes your workforce’s culture by implementing systems, processes, leadership training, and a foster of culture alignment to aid in a smooth operations process. 
  • Possibilities Consulting has outsourced HR services through Ari Saul and additionally, they help develop inspirational leadership, intentional culture, and high-performance teams in the workplace. 


You don’t need an attorney until you need an attorney.  From employment law attorneys to civil litigation, finding the right lawyer when you need one will speed the time to resolution and protect you from unnecessary losses.  

Civil litigation attorneys Gupta Evans and Ayres and Employment law attorneys Tencer Sherman are reliable resources in the San Diego area. 

Protecting your intellectual property not only protects your ideas but can ensure that disgruntled ex-employees don’t take your business plan and implement it in a state with no non-compete clauses. Gary Eastman of Eastman IP is a resource here in San Diego.

At Milikowsky Tax Law, we’ve been entrepreneurs ourselves. We know first-hand about the challenges and the excitement of growing a business.  Regardless of your industry, there are structural elements that will help your company grow and manage the fluctuations of staffing, client success, and scaling more easily. 

Think we forgot something? Connect with us and share! 

Want to know when you might need a CPA vs a Tax Attorney? Read our article here


What Every Business Owner Needs to Know:

Vince B. EDD audit Case Story

We are grateful to our client, Vince B., for sharing his story of how we were able to help him weather an EDD audit. This audit could have closed his business and had far-reaching repercussions for his personal finances as well as business finances.

In 2020, Vince was hit with an EDD audit that threatened to not only shut down his business but impact his personal finances as well. Hear his story of how our expert team navigated his misclassification audit and brought down hundreds of thousands in fees down to about $6,000. His misclassification audit closed in 2021. 

Meet Vince in his testimonial below.

“My name is Vince Bindy and I’m a co-founder, co-owner of a behavioral health mental health facility in Orange County, California, and we’ve been operating efficiently for some years. And then we got hit with an EDD audit and to make a long story short, the EDD was trying to claim that all our therapists were actually employees. 

At the time it was quite shocking and we contacted some various attorneys and one attorney really just terrified myself and my business partner, Nick.

We came up with potential damages of theoretically several hundred thousand dollars. What could have been $300,000, $250,000, $400,000. We really didn’t know. And also, what we found out, much to our chagrin, is I guess a couple or three years ago, I don’t know for sure. 

The State of California passed a new law where if the corporation, for some reason, couldn’t pay all the back fees and penalties due to the EDD from an audit like this, they could come after us personally.

We called around, called around, interviewed three or four different attorneys. John Milikowsky’s law firm was one of the attorneys we interviewed. 

Fortunately, we picked John. 

All the attorneys sound good on the phone, right? When we first interviewed him, something about John felt right. He came across as very soothing and calm because we talked with a couple of other attorneys. And like I said, that one attorney really put the fear of God in us, times three. I mean, laying out all these potential scenarios. I guess that’s sometimes a sales technique to terrify somebody when you’re an attorney or other professions, and then getting them to sign up with you. 

John didn’t use that approach, more of a straightforward one.

We told him what this other attorney said. And he said, “Yeah, that could happen. But it’s very rare. I’ve never had that happen to me. It’s very remote.” So, I liked that soothing approach. He’s very experienced. He laid out all the cases he worked with in the past and dealt with firms similar to us in the medical field about our size. 

The third thing was just the way he was going to lay out the process. He just laid out the process. Here’s what we’re going to do first. Here’s what we’re going to do next. You’ll pay them a certain amount of money at this point and then kinda lay it out when the money will be due and kinda mapped out. 

A lot of the times you ask an attorney, roughly get me in the ballpark, what it’s going to cost and you never get an answer.

And John had no guarantees. You can never get a guarantee from an attorney obviously, but kinda he laid out a min-max of what it might cost, his legal fees. And I appreciated that as well. 

To make a long story short, that potential fear of having a debt of two, three, $400,000 got whittled down, negotiated by John’s legal firm down to, I believe, $6,000 in change. I could be off by a thousand bucks. It could have been five, could have been seven, I don’t remember. But when that happened, we were jumping for joy to tell you the truth. And so that’s why I’m doing this video. I’m extremely happy with the services.

And at the end of the day, results are all that matters in the way I view things and old John’s a great guy, but more importantly, he produced the results. And I got to tell you, that wasn’t even a goal. My goal with my partner, Nick, I said, “Nick, if John could get it below a hundred thousand dollars, I’d be happy at this point in time.” 

He got it down to 6,000 and change. So what more can I say?”

-Vince B. 

Vince’s audit was an EDD worker reclassification audit, something we are seeing more and more of in our practice in 2021. EDD is actively seeking 1099 contractor misclassification cases since the passage of AB-5 the Gig work bill in January 2020.  

The new ABCs of worker classification set stricter criteria for workers to be classified as contractors vs wage-earning W-2 employees.  In the case of this client, there was one worker who was misclassified and EDD sought to compel the company to reclassify ALL of their 1099s as W-2s.  

In cases like this, the advocacy of an experienced audit attorney can make the difference between a financially damaging penalty and a manageable penalty amount due.  While no one case can determine the outcome of any other, we do know that EDD’s audits are swift, decisive, and aggressive. 

Not sure what an EDD Benefit Audit is? Find out here

The Difference Between EDD and CSLB audits

Employment Development Department (EDD) and California Contractors State License Board (CSLB) audits both expose your business to fines and penalties if the agency finds you noncompliant with the strict regulations and policies they have in place for classifying 1099 independent contractors. 

Both CSLB and EDD perform site sweeps that can initiate an audit of your construction business.  CSLB is focused on (as their name suggests) licensing, whereas EDD is focused on payroll tax compliance.  The effect of an audit from either CA EDD or CSLB is the same: the stoppage of work and potential penalties and back taxes. 

EDD Audits 

EDD audits focus on payroll taxes. When an agency, EDD, CSLB, etc. audits a business, a common audit finding is the misclassification of employees. Employers can hire W-2 employees or independent contractors (1099). 

The difference between 1099 and W2 employees lies in the scope of work and which tax form each receives. Full-time and Part-time employees receive W-2 tax forms. They have a schedule set by the employer and report to their employer for daily tasks. These employees pay their employment taxes on their wages earned usually through the payroll provider who issues their checks. On the other hand, independent contractors receive 1099 forms, are not taxed on income, and have more work freedom as they are self-employed.  Contractors (1099 workers) set their own hours, submit proposals and have multiple “gigs” for different companies. 

The most common triggers of an EDD audit are:

  • An independent contractor filing for unemployment
  • Employee complaint of misclassification
  • Late or inconsistent filing of taxes 
  • Randomized verification audit 

EDD provides an in-depth checklist to guide employers on how to classify employees correctly. 

Worker misclassification 1099 vs W-2

An audit by EDD can lead to criminal exposure because incorrect classification means that  federal and state taxes were incorrectly filed and insurance was not provided when mandated by law. EDD identifying incorrectly classified independent contractors as W-2 employees or vice versa can open your business to fines, penalties, and potential jail time.

According to EDD, industries that run a higher risk of misclassifying workers include: 

  • Construction 
  • Hospitality 
  • Seasonal Industries
  • Technology
  • Healthcare

While you can hire unlicensed workers, they can only perform work under your license.  To work under your license requires they are classified as W-2 wage-earning employees. Correctly classifying employees from the beginning of the hiring process keeps your business compliant and ready for an EDD audit if one should occur. 

CSLB Audits 

CSLB is a government agency that regulates the construction industry and creates policies to maintain health, safety, and general welfare for the public. They provide licenses for independent contractors that stay in compliance with regulations and rules within the state of California. 

Contractors licensed in other states but working in California must apply for a CSLB license to remain compliant. Independent contractors hired and working in California must have a current and valid California license from CSLB to remain compliant with rules and regulations. 

Licenses are not required by the State of California only if the independent contractor is not advertised as a licensed contractor or if the job value including labor and material does not exceed $500. 

Audits performed by CSLB occur without any notification. Anyone can file a complaint or report unlicensed activity with CSLB to audit your business if they suspect suspicious activity of your worksite (including a competitor). Their statewide investigation teams conduct undercover sting operations for construction site sweeps. Agency will appear on the site itself and interview each worker to check for correct employee classification, licensing, and status.  

If you are caught hiring an independent contractor without a license, with an out-of-state license, or are incorrectly classified, you will be open to the fines and penalties of an audit.

The penalties of hiring an unlicensed contractor are hefty. If you are a business and you hire a non-licensed contractor, you may be putting yourself and your business at additional risk. These risks often include lawsuits in the event of injury, fines, and potential jail time.

This year alone, CSLB conducted site sweeps across California that cited 74 people for unlicensed contracting.  

To find out if your current or future independent contractors are licensed, use CSLB’s license check here. The site allows you to verify an independent contractor’s license status by entering a provided license number, or a Home Improvement Salesperson (HIS) registration number. 

How Do I Make Sure My Employees are Correctly Classified?

Is your company hiring independent contractors and subcontractors? Make sure each individual has a valid license during the entire time they are working for you. Sometimes, licenses can expire or be suspended during an active job. 

If EDD or CSLB audits your business and finds unlicensed independent contractors or independent contractors with an expired license, it will result in high fines and penalties. 

Learn more about how got1099 can correctly verify your employees, and send you alerts notifying you if employees’ licenses have expired by clicking the link in bio. 

Get the facts, order a got1099 report for your contractors to accurately assess the status of a worker you want to hire. The report includes verification of license along with notifications for license expiration so you don’t have to keep track of each individual’s license. 

Check this list of industries who are exempt from AB-5 to make sure your business is in compliance here


The Difference Between EDD and CSLB audits

Recent Construction Site Sweeps Explained

General contractors who hire unlicensed workers and unlicensed subcontractors put themselves at risk for potential criminal action by the local District Attorney (DA) and they risk receiving a stop work order from California Contractor State Licensing Board (CSLB) if and when that agency performs a site sweep.


A site sweep occurs when and one of several government agencies, including CSLB, Employment Development Department (EDD), and the California Labor Commissioner, target a specific local area in which construction is being performed and physically show up on the active site to conduct a site inspection. 


During a site inspection, workers are interviewed and EDD or CSLB verify whether they are properly licensed. 


These site inspections are random and can occur at any time, there is no forewarning.


Even a legitimate subcontractor who is licensed can run into issues if their license becomes suspended. As a general contractor, best practice is to regularly check to confirm all of your workers’ licenses are current. We recommend verifying your workers’ licenses monthly, if not more often.


CSLB typically refers their cases to EDD to audit the company and identify whether the 1099 independent contractors should be converted to employees. If you are found to have misclassified your workers as 1099s as opposed to wage-earning W-2s, your company is obligated to pay back payroll taxes and will be charged back penalties.


Employee misclassification is a serious issue because certain audit cases can be referred to the local DA for prosecution for insurance (worker’s compensation) fraud. Ensure your independent contractors are classified correctly and updated on their correct licensing requirements to avoid the penalties and fines from a random site sweep. 


According to the California Contractors State Licensing Board (CSLB), this year alone, 74 people were cited for unlicensed contracting. CSLB’s article highlights the risk for general contractors who hire unlicensed contractors. This number only considers those cited under a CSLB site sweep, not those caught up in an EDD site sweep.


Article below was originally posted on CSLB’s website – to see the original article click here: CSLB article:

Contractors Face 130 Legal Actions After Series of Statewide Stings and Sweeps.


Contractors State License Board enforcement operation part of national effort to warn consumers about dangers of hiring unlicensed or uninsured contractors. 


SACRAMENTO, Calif. – A series of statewide stings and sweeps conducted by the Contractors State License Board (CSLB) has revealed that unlicensed activity was not slowed by the pandemic. 


During the operation, 74 people were cited for unlicensed contracting. One of the many ways unlicensed contractors put homeowners at risk is because they do not carry workers’ compensation insurance, making consumers liable if someone is injured on the job. 


“Licensed contractors have proven experience, qualifications and verifiable business credentials to do the job right,” said David Fogt, CSLB Registrar. “This enforcement effort shows that even in an industry thriving after the pandemic there are still unlicensed contractors looking to take advantage of consumers,” Fogt said. 


From June 7 to 25, 2021, CSLB partnered with local law enforcement to conduct four undercover sting operations in El Cajon, San Diego County; Montclair, San Bernardino County; St. Helena, Napa County; and in Visalia, Tulare County. Undercover stings target unlicensed contractors, with investigators contacting the suspects through their advertisements. 


The suspected unlicensed operators came to the sting locations to place bids on projects including concrete, electrical, flooring, kitchen and bathroom remodeling, landscaping, painting, plumbing, roofing, and tree services. As a result, a total of 56 legal actions were filed and 49 people are accused of contracting without a license. Unlicensed contractors can face penalties of up to six months in jail and/or a fine of up to $15,000 if they bid or contract for work valued at more than $500. 


Twenty-four sweep operations of construction sites were also conducted in Fresno, Kern, Kings, Los Angeles, Merced, Monterey, San Benito, San Bernardino, San Diego, San Mateo, Santa Clara, Santa Cruz, and Ventura counties that resulted in 74 legal actions against licensed and unlicensed contractors. Twenty-five of the 74 legal actions were for unlicensed contracting and 30 Stop Orders were issued which halted all employee labor at active job sites where contractors did not have workers’ compensation insurance for their employees. 


The enforcement actions were part of a nationwide effort coordinated by the National Association of State Contractors Licensing Agencies designed to make consumers aware of the importance of hiring licensed contractors and the risks of using unlicensed operators. 


“Many homeowners are not aware of the financial risks when they hire unlicensed contractors,” Fogt said. “Saving a few dollars by hiring an unlicensed contractor can end up costing a consumer thousands of dollars when the work is not completed or in need of correction.” 


During the stings and sweeps, 13 individuals were also cited for requesting an excessive down payment. In California, a home improvement project down payment can’t exceed 10-percent of the contract total or $1,000, whichever is less. This misdemeanor charge carries a maximum penalty of six months in jail and/or a fine of up to $5,000. 


During operations, unlicensed individuals were given information on getting licensed and were invited to attend one of CSLB’s Licensed to Build workshops. CSLB also created a new B-2 licensing classification for home remodeling with the goal of promoting the growth of small businesses and increasing consumer protection. 


For their protection, CSLB recommends that consumers get at least three bids and check references before hiring someone for a construction job. Consumers can quickly check if a contractor is licensed on CSLB’s online Instant License Check. 


From the License Check, consumers can also view the contractor’s individual license page, which indicates if the contractor is carrying workers’ compensation insurance for employees. Contractors without workers’ compensation insurance should not have workers on the jobsite. Consumers can find a list of licensed contractors in their area by using CSLB’s Find My Licensed Contractor.