For San Ramon households with stock compensation, rental property or income from more than one state, tax trouble usually arrives as a penalty notice or a California Franchise Tax Board proposed assessment rather than a dramatic audit. A tax attorney in San Ramon can test whether the notice is right, request penalty relief, file a timely protest and represent you if the inquiry becomes a full examination.
Why San Ramon returns tend to draw notices
Complex returns are not wrong returns, but they create more places for information to fall out of sync between what you filed and what third parties reported. Three patterns are especially prone to mismatches.
Equity compensation
Restricted stock units are generally taxed as wages when they vest, yet the brokerage statement for a later sale may show an incomplete cost basis. If the basis is not adjusted on the return, the same income can appear to be taxed twice, or the IRS matching system may flag a mismatch. Incentive stock options raise a different issue: exercising and holding the shares can create alternative minimum tax even though nothing was sold. Our guide to the CP2000 response covers the matching notices these situations often produce.
Moves into or out of California
Part-year residents must divide income between states, and equity that was granted in one state and vested in another can be partly taxable in California. The FTB pays close attention to residency changes, especially when a taxpayer claims to have left the state.
Rental and investment income
Depreciation, passive loss limits and the sale of a former residence that became a rental all involve calculations that examiners review carefully.
If a notice is sitting on your counter now, call (415) 754-0115 to schedule a free consultation, or send the details through our contact page. Response windows on these letters are short.
Penalty notices: how a tax attorney in San Ramon approaches relief
Penalties can make a manageable balance feel unmanageable. The first step is identifying exactly which penalty was charged, because each one has different relief rules.
Which penalty is on the notice
- Failure to file applies when a return is late.
- Failure to pay applies when tax shown on the return is not paid by the due date.
- Accuracy-related penalties apply to certain understatements found after filing, often following a matching notice or audit.
- The estimated tax penalty applies when withholding and quarterly payments fell short during the year, which is common when large vesting events were under-withheld.
First-time abatement
The IRS offers an administrative waiver of failure-to-file and failure-to-pay penalties for taxpayers with a clean compliance history for the prior three years. California has adopted a similar one-time abatement for individuals for more recent tax years, with its own eligibility rules.
Reasonable cause
Where first-time abatement is unavailable, penalties may be removed if you show you exercised ordinary business care and prudence but still could not comply, for example because of serious illness, a disaster or reliance on incorrect written advice from the IRS. Our article on penalty abatement for reasonable cause walks through the argument.
What reasonable cause usually is not
Being busy, not knowing the rules, or relying on a preparer without providing complete information rarely qualifies on its own. The estimated tax penalty is also harder to remove, because it has only narrow statutory waivers.
Answering an FTB Notice of Proposed Assessment
A Notice of Proposed Assessment is California's way of saying it intends to assess more tax. It may follow a federal change, a residency review or the FTB's own data matching.
The protest
You generally have 60 days from the notice date to file a written protest explaining why the assessment is wrong and attaching support. If no protest is filed, the assessment becomes final and moves to collection.
Notice of Action and the Office of Tax Appeals
After reviewing a protest, the FTB issues a Notice of Action. If it upholds the assessment, an appeal can generally be filed with California's Office of Tax Appeals within 30 days of that notice. Each step has strict timing, and missing one narrows the options considerably.
A federal audit can also trigger a state problem. When the IRS changes a federal return, California generally requires the change to be reported to the FTB within six months, and the FTB may then propose its own assessment. Our guide to the FTB audit in California explains how state exams work.
Audit representation for higher-income households
When a notice turns into an examination, representation keeps the process structured. With a power of attorney, an attorney can request the information the agency is relying on, respond to document requests in an organized way, keep the review focused on the issues actually raised and preserve appeal rights at each stage.
The Somal Law Firm represents Tri-Valley individuals and small businesses in tax audits, appeals and IRS disputes from its Pleasanton office, close to San Ramon. Our practice areas page outlines that tax work, and our page on a tax attorney in Contra Costa County explains how federal and state notices can overlap.
Frequently asked questions
Can I request penalty relief if I have already paid the penalty?
Generally, yes. A claim for refund of a paid penalty can be filed within the applicable time limits, using the same first-time abatement or reasonable cause grounds.
Will an IRS audit automatically lead to an FTB audit?
Not automatically, but a final federal change usually has to be reported to California, and the FTB can propose matching adjustments to your state return.
Does a Notice of Proposed Assessment mean I owe the money?
It means the FTB proposes to assess it. Until the protest period ends without a protest, or the protest and any appeal conclude, the amount is not final.
Is it better to amend the return or answer the notice?
It depends on the stage. Once the IRS or FTB has opened an inquiry, corrections are usually raised in the response to that notice, because an amended return filed separately can cross in the mail and muddy the record. An attorney can review which approach fits the letter you received.
If you have received an IRS penalty notice or an FTB proposed assessment in San Ramon, call (415) 754-0115 to schedule your free consultation, or use our contact page. Have the notice and the return for that year ready, and an attorney can review your situation and the deadline that applies.
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.