An Orange County Ftb Audit Lawyer Can Challenge Tax Assessments

Residency disputes can become significant when a taxpayer claims to have moved out of California while maintaining substantial connections to the state. Under R&TC § 17014, residency analysis may involve where the taxpayer lives and whether an absence from California is temporary or transitory.

No single fact necessarily decides the issue. The FTB may examine the taxpayer's pattern of physical presence and other facts showing where personal and economic ties were maintained during the years under review.

Businesses operating inside and outside California may face questions about how income is assigned to the state. R&TC § 25136 contains sourcing rules that can affect the treatment of sales other than sales of tangible personal property.

For a multistate company, the dispute may turn on where a benefit was received, how particular receipts were characterized, and whether the return applied California's sourcing rules correctly. Contracts, invoices, customer information, and accounting records may therefore become important audit evidence.

Federal changes can also create California consequences. Under R&TC § 18622, taxpayers generally must report qualifying federal changes or corrections to the FTB within six months after the federal determination becomes final.

This point matters because the California statute of limitations can be affected by whether and when the federal adjustment was reported. A taxpayer dealing with an IRS adjustment should therefore consider the related California reporting obligation rather than treating the federal matter as a completely separate proceeding.

During an examination, the FTB may request documents or additional explanations concerning items on the return. The request can involve financial records, transaction documents, residency evidence, or other material connected to the issue under review.

The goal should not be to send every available record without first understanding the request. Records should be reviewed for relevance, completeness, and applicable privilege concerns. A clear response can address the auditor's question without unnecessarily creating confusion about unrelated transactions or tax years.

If the FTB concludes that additional tax, penalties, or interest should be assessed, it may issue a Notice of Proposed Assessment, or NPA. A taxpayer who disagrees generally has 60 days from the date of the NPA to submit a protest under R&TC § 19041.

The protest should identify the disputed adjustments and explain the factual and legal basis for challenging them. Supporting documents can be particularly important where the disagreement turns on residency, sourcing, deductions, or the characterization of a transaction.

Filing a protest does not by itself stop interest from accruing on the proposed liability. A taxpayer considering a payment or tax deposit to limit additional interest should evaluate that decision separately from the merits of the protest.

After reviewing the protest, the FTB may affirm, revise, or withdraw the proposed assessment. Its determination is generally communicated through a Notice of Action, or NOA.

If the taxpayer disagrees with an adverse NOA, an appeal generally must be filed with the California Office of Tax Appeals within 30 days from the date of the notice. The OTA is separate from the FTB and provides an administrative forum for resolving California tax disputes.

Missing the appeal deadline can substantially change the taxpayer's available procedural options. For that reason, the date printed on the NOA should be reviewed as soon as the notice arrives.

An FTB dispute is often won or lost on the quality of the factual record. Accounting entries alone may not explain why income was sourced outside California, why a taxpayer changed residency, or why a particular transaction received specific tax treatment.

Contracts, contemporaneous correspondence, financial records, travel information, corporate documents, and other evidence may provide the missing context. Organizing those materials around each disputed adjustment can make the taxpayer's position easier to evaluate during both the protest and appeal stages.