An FTB audit in California is the Franchise Tax Board's review of a state return to confirm the income and deductions reported. It usually starts with a letter naming the tax year and the issue, moves through document requests, and ends with either a no-change letter or a proposed assessment that can be protested within 60 days and later appealed to the Office of Tax Appeals.
Those 60 days pass quickly. To have an attorney look at your letter now, call (415) 754-0115 to schedule a free consultation, or write to us through the contact page.
What puts a return in front of an FTB auditor
The FTB says audits can originate from several sources, including the IRS. In practice, issues unique to California explain why people who never hear from the IRS still receive a letter from Sacramento.
Residency and part-year moves
California taxes residents on all of their income and nonresidents on income from California sources. Someone who moved to Nevada, Texas or overseas but kept a home, family, vehicle registration or business here may be asked to prove when residency actually ended. State law presumes that anyone who spends more than nine months of the tax year in California is a resident, and the FTB weighs ties such as where a spouse and children live, where a home is owned or rented, voter registration, the driver's license and where doctors, accountants and bank accounts are kept.
Income sourced to California
Nonresidents can still owe California tax on wages for work performed here, rent from property located here, or business income apportioned to the state. Remote work arrangements and stock compensation earned partly in California are common friction points.
Federal changes the FTB picks up
When the IRS adjusts a federal return, California usually follows. State law requires taxpayers to report a federal adjustment to the FTB within six months. If they do, the FTB generally has two years from that report to assess; if they report late, four years; if they never report, there is no time limit. Our article on the IRS audit appeals process covers the federal half of that chain.
Schedule CA differences
California does not follow every federal rule, so some items are adjusted on Schedule CA. Mistakes in those adjustments, such as depreciation that differs between the two systems, can prompt questions on their own.
How an FTB audit in California unfolds
The opening letter identifies the year, the issues and the contact person. The auditor may then send one or more Information Document Requests asking for specific records. According to the FTB, staff schedule appointments, set deadlines, review the documents provided and give the taxpayer a chance to respond to the agency's position before the audit closes. Taxpayers have the right to a representative, such as an accountant or a tax attorney, at any stage.
The result arrives in writing. It might be a no-change letter, a Notice of Proposed Assessment adding tax and penalties, a notice that too much tax was paid, or a proposed change to a carryover amount. Additional tax carries interest from the return's original due date until it is paid.
How far back the FTB can reach
The general limit is four years from the date the return was filed, or from the original due date if it was filed early. If no return was filed, there is no deadline at all. Because the usual federal window is three years, a state audit can reach a year the IRS has already left alone.
Disputing the result: protest, appeal, rehearing
Step one: the protest
A taxpayer who disagrees with a Notice of Proposed Assessment can file a protest with the FTB within 60 days of the notice date. Without a protest, the assessment becomes final and a statement of balance due follows.
A deposit to stop interest
While a protest is pending, a taxpayer may make a tax deposit to stop interest from accruing. If the assessment is later withdrawn, the FTB returns the deposit with interest.
Step two: the Office of Tax Appeals
If the FTB affirms its position after the protest, it issues a Notice of Action. An appeal to the Office of Tax Appeals (OTA), which is separate from the FTB, must be filed within 30 days of that notice, either through the OTA's online portal or by mail on OTA Form L-01 or a signed letter. The OTA then runs a written briefing process and holds an oral hearing if one is requested.
Step three: after the OTA opinion
Either side can petition the OTA for a rehearing within 30 days of its opinion. Once the matter is final, a taxpayer who still disagrees generally has to pay, file a claim for refund and, if it is denied, bring a refund suit in Superior Court within strict time limits.
Where a tax attorney fits in
Some FTB audits are straightforward document exercises that an organized taxpayer or accountant can handle. Others turn on legal judgment: how residency rules apply to a messy move, how a federal settlement should be reported to the state, or how to frame a protest that preserves every argument for the OTA. Conversations with an attorney are also covered by attorney-client privilege, which can matter when the facts are sensitive.
Attorney Bob Somal represents individuals and small businesses in tax audits and appeals from The Somal Law Firm's Pleasanton office, serving the Tri-Valley, Alameda and Contra Costa Counties. See our practice areas and our guide to IRS audit help in California for how federal and state reviews tend to overlap.
Frequently asked questions
How long does an FTB audit take?
The FTB says timeframes vary with complexity. A narrow document request can close relatively quickly, while residency questions or multi-year reviews take longer. Slow responses to Information Document Requests tend to stretch the process further.
Can the FTB audit me if the IRS didn't?
Yes. The FTB runs its own audits, especially on residency and California-source income, and its general four-year assessment window is longer than the usual federal one.
What happens if the 60-day protest deadline passes?
The proposed assessment becomes final and the FTB issues a statement of balance due. The remaining route usually involves paying and filing a claim for refund, which an attorney can evaluate.
Is the Office of Tax Appeals part of the FTB?
No. The OTA is an independent state agency that hears appeals from FTB decisions. The FTB itself does not decide appeals.
Received an FTB audit letter or a Notice of Proposed Assessment? Call (415) 754-0115 to schedule a free consultation, or reach us through our contact page. Bring the letter and the return in question, and we will walk through the issues the FTB has raised, the deadlines that apply and the options for responding.
Attorney Advertising. This article is general legal information for Bay Area residents, not legal advice, and does not create an attorney–client relationship. Every situation is different — please consult a licensed attorney about your specific circumstances.