FTB Form 4600 Tax Return Requests and Residency Inquiries

The California Franchise Tax Board (“FTB) has a reputation for aggressively seeking out nonresidents who spend several months or more in California each year. Their focus is to determine whether you would make a good (read “vulnerable”) candidate for a California residence tax audit (see discussion under the heading “California Residence Tax Audits”). They start by sending you’re a Form 4600 inquiry letter and request to file a tax return, asking you to complete their questionnaire (which we don’t recommend) to learn more about you. They use that information to determine whether they can make a case that you should have filed a nonresident tax return, a part-year resident return or a resident income tax return for the tax year in question.

Usually, Form 4600 inquiry letters and requests for a tax return result from electronic disclosures made available to the FTB from any of various sources, including the IRS, other state tax authorities, payors of various types of income, “flow-thru” business or investment entities in which you own an interest which may be doing business in California and financial institutions to which you make mortgage payments, among other possible sources. It is also possible to make yourself a target for a Form 4600 inquiry letter and request for a tax return, by filing your Federal income tax return using a California address. The resulting electronic disclosures are compared against the FTB’s database of filed tax returns for the tax year in question. If there is no record of your having filed a California tax return for that year, the FTB computer generates a Form 4600 inquiry letter, questionnaire and a request that you file a tax return.

As the saying goes . . . “anything you say may be used against you.” This is as true in responding to an FTB Form 4600 inquiry letter, questionnaire and request for tax return filing as it is in a criminal case. We have decades of experience answering Form 4600 inquiry letters professionally, including 28 years serving nonresident clients in Palm Springs, Cathedral City, Palm Desert, Rancho Mirage, Indian Wells and La Quinta, among other desert communities. We recommend a professionally-crafted response to a Form 4600 inquiry letter because, in it, we can show the FTB the difficulty they will have making their case against you and the potential cost of doing so. This is in contrast with an amateur response, which usually just provides them with the factual information they need to proceed against you. Indeed, a professionally-crafted response can make the difference between your receiving a Form FTB 4054 ENS Confirmation Letter, stating that the FTB intend to close their inquiry or, instead, further information and document requests leading to a full-scope residence tax audit.

We have a strong track record of dissuading the FTB from pursuing Form 4600 inquiry letters into full-scope residence tax audits. If you or someone you know has received a Form 4600 inquiry letter, questionnaire and/or a request for a tax return, contact us as quickly as possible at (760) 578-5093, or via email at Brent@LanceCrossborder.com or by using our online contact form. We will respond to all relevant inquiries quickly without any obligation on your part.