California FTB Audit Process

How an FTB Audit Starts

Most FTB audits begin with a letter — either a Notice of Proposed Assessment (NPA) for a specific adjustment, or an audit notice requesting documentation. The FTB selects returns for audit based on: federal audit adjustments (the IRS notifies the FTB of all federal changes), discrepancies between California returns and federal returns, residency issues, and data matching with employers and financial institutions.

The most important rule when you receive an FTB notice: respond by the deadline. The FTB's deadlines are strict, and missing them can result in losing your right to protest an assessment or present evidence.

Types of FTB Audits

Correspondence Audit: The FTB mails a notice requesting documentation for specific items. This is the most common type and can often be resolved by mail without meeting with an FTB auditor.

Office Audit: You or your representative meets with an FTB auditor at an FTB field office. Covers multiple issues and typically involves a more comprehensive review of your return.

Residency Audit: The FTB examines whether you were a California resident in a given year. These audits are particularly intensive — the FTB reviews your social connections, property, vehicles, financial accounts, and physical presence records.

RAR Audit: Triggered by a federal audit adjustment. The FTB reviews the IRS's findings and issues a corresponding California assessment.

FTB Audit Timeline

The FTB has four years from the filing date to audit a California return (compared to three years for the IRS). If you underreported income by more than 25%, the FTB has six years. There is no time limit if you never filed a return or if the FTB suspects fraud. Once an audit begins, the FTB will issue an Information Document Request (IDR) with a response deadline — typically 30–60 days.

Common FTB Audit Issues

The FTB most commonly audits: residency status (particularly for high-income individuals who claim to have left California), conformity adjustments (California does not conform to all federal law changes), rental income and depreciation (California's depreciation rules differ from federal), and business income reported on Schedule C or pass-through returns.

Protesting an FTB Assessment

If the FTB issues a Notice of Proposed Assessment (NPA) and you disagree, you have 60 days to file a written protest. The protest must state the specific items you disagree with and the reasons. The FTB will assign the protest to a protest hearing officer who reviews the case independently of the original auditor. KDA prepares and files FTB protests and represents clients at protest hearings. The protest process resolves the majority of FTB disputes without escalating to the Office of Tax Appeals.

Office of Tax Appeals (OTA)

If the FTB denies your protest, you can appeal to the Office of Tax Appeals (OTA) — California's independent tax appeals body, created in 2017 to replace the Board of Equalization for income tax appeals. The OTA conducts formal hearings and issues written decisions. OTA decisions can be appealed to California Superior Court. KDA represents clients at the OTA level and has successfully reversed FTB assessments on residency, depreciation, and business income issues.