FTB vs IRS: Key Differences for California Taxpayers

Two Separate Tax Agencies

California taxpayers deal with two completely separate tax agencies: the Internal Revenue Service (IRS), which administers federal income tax, and the California Franchise Tax Board (FTB), which administers California state income tax. These agencies have separate rules, separate audit processes, separate collection procedures, and separate appeal rights. Resolving an issue with the IRS does not resolve the same issue with the FTB — and vice versa. KDA represents clients before both agencies simultaneously when both are involved.

California Conformity to Federal Law

California generally conforms to federal tax law — but with significant exceptions. As of 2026, California does not conform to: 100% bonus depreciation (California uses MACRS with no bonus depreciation), the OBBBA's No Tax on Tips and No Tax on Overtime provisions, and several other federal provisions. This means your California taxable income can be significantly different from your federal taxable income — and your California return requires separate calculations for depreciation, certain deductions, and certain credits.

Audit Authority Differences

Collection Powers Compared

Both the IRS and FTB have broad collection powers, but the FTB has some authorities that are more aggressive than the IRS in practice. The FTB can intercept California tax refunds, lottery winnings, and state vendor payments. The FTB can also suspend a taxpayer's California driver's license for unpaid tax balances over $100,000 — a power the IRS does not have.

Residency: Where FTB Differs Most

California taxes its residents on all worldwide income. The FTB aggressively audits residency claims — particularly for high-income individuals who claim to have moved out of California. The FTB uses a "closest connections" test that examines where you have your strongest social, economic, and family ties. Having a California driver's license, keeping a California home, maintaining California club memberships, or having a spouse and children who remain in California can all support a finding that you remained a California resident even if you spent most of the year elsewhere.

How the IRS and FTB Share Information

The IRS and FTB share data through the federal-state information exchange program. The IRS notifies the FTB of all federal audit adjustments — the FTB then has two years to issue its own assessment. KDA files the required California Revenue Agent Report (RAR) disclosure after every federal audit adjustment to start the FTB's two-year clock and prevent an open-ended assessment period.