California Income Tax Audits and Appeals

Our cross-border tax planning efforts on behalf of our clients are designed to keep them out of trouble with the California Franchise Tax Board (“FTB”) and are almost always effective at doing so, if our recommendations are followed. However, we often have clients engage us who have not had the benefit of our cross-border tax planning assistance before becoming the subject of a Form 4600 inquiry letter or becoming embroiled in a tax dispute with the FTB over their residency status or other California tax issues. In these cases, we put our decades of experience handling California cross-border tax issues to work for those clients in the ensuing tax audit. We also represent clients who did not have our assistance in the audit process to settle or appeal post-audit California tax assessments.

The tax audit process in California is multi-faceted and has many steps. As discussed on our page entitled “California Residency Tax Audits,” for most nonresidents, a tax audit often follows one or more inquiries from the FTB about why you have not filed a tax return. If a professionally drafted response to those inquiries does not dissuade the FTB from requesting further information and documents, you are probably then involved in a residency tax audit, whether the FTB state that fact at that time or not.

The audit may take place at the FTB’s offices or in the field (preferably at your attorney’s offices, rather than at your home, if it is an individual tax audit). One or more “information document requests” (“IDRs”) will be issued, asking you for information and documentation supporting a position taken on a tax return, or disclosing your contacts with California, and indicating where you were on each day of the year in question in a residency audit scenario. If after considering all of the evidence, the FTB believes that you owe tax, they will issue an Audit Issue Presentation Statement (“AIPS”), which sets forth the FTB’s position in writing and gives us a chance to respond. If the response does not persuade them as to the inaccuracy of their position, they will issue a Notice of Proposed Assessment (“NPA”). In response to the NPA, we will draft and submit a protest on your behalf. After a hearing on the protest, if the FTB is still unpersuaded, they will issue a Notice of Action on the assessment or the finding of residency.

Assuming that you will want to appeal the FTB’s tax assessment or a finding of residency, we will then file an appeal on your behalf to the Office of Tax Appeals (“OTA”), which is an independent body from the FTB (but not a court), where your case will be heard by a three-member panel of administrative law judges. If after an oral hearing and submission of briefs, the resulting OTA opinion is not in your favor, you then have the further option of filing suit in California Superior Court to challenge the OTA’s decision.

At Lance Cross-Border Law and Tax, we guide our clients through every step of the audit and appeals processes, making the best case possible on your particular facts. We welcome inquiries concerning your specific tax situation. Feel free to call us at (760) 578-5093, contact us via email at Brent@LanceCrossborder.com or by using our online contact form. We will respond to all relevant inquiries without any obligation.