Residency Audits

Franchise Tax Board Audits, Procedures, and Penalties

Determining and Contesting California Taxation of Residency

All residency disputes begin with a Franchise Tax Board audit. Once the audit commences, the Franchise Tax Board will request that a taxpayer complete an “Information Concerning Resident Status” Form (Form 3805F). The Franchise Tax Board will also likely visit any out of state locations claimed to be an individual’s principal residence or business location. In addition, any individual being audited by the Franchise Tax Board should expect a review of canceled checks, credit card statements, and bank charges to determine physical presence with California as compared to other states. These types of audits can be difficult and time consuming. If you are being audited by the Franchise Tax Board because of a residency controversy, you will need to retain a seasoned tax attorney that can not only demonstrate that there are insufficient contacts with the State of California to establish residency, but that you are a tax resident of another state or country. At Moskowitz, LLP, we have been aggressively representing clients through Franchise Tax Board residency audits for years. We not only represent clients through these incredibly difficult audits, we also plan for them. In certain cases, if we determine that a compelling position can be taken that a client is a non-resident of the State of California for tax purposes, we may take the position that California non-resident returns should be filed. By filing non-resident tax returns, it may be possible to commence the running of the statute of limitations on income tax assessments. This could be an extremely valuable tool in a future residency audit. On the other hand, if non-resident tax returns are not filed, the statute of limitations would not likely commence and the issue regarding residency could potentially always remain open for potential assessments. If you believe that the Franchise Tax Board could attempt to classify you as a California resident, let us advise you as early as possible to plan accordingly.

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