What Should I Expect from a Franchise Tax Board Audit?
*The following article was updated in March 2024*
People typically associate the words “tax audit” with the Internal Revenue Service and the federal government. However, California taxpayers can also be audited by the Franchise Tax Board (FTB).
You might be wondering, what is the Franchise Tax Board (FTB)? It’s the state agency responsible for administering and enforcing California’s income tax laws for both businesses and individuals.
What is the Franchise Tax Board Audit Process? (Compared with IRS)
Like the IRS, the Franchise Tax Board (FTB) audit process involves a review of personal and business tax returns to ensure you are accurately reporting income, that you paid the correct taxes owed, or if there’s a question regarding your residency. Unlike the IRS however, the FTB generally has up to four years to conduct an audit of your tax returns (the IRS generally has three years). IRS and FTB audits differ in a few key ways.
What is a Notice of Proposed Assessment in California?
After an FTB audit, you receive a Notice of Proposed Assessment (NPA) in California. The NPA will inform you that your tax return has been changed and that you may owe FTB tax penalties and interest with any additional taxes (if applicable).
There are two notices you may receive:
FTB Form 7275
FTB Form 7275 (Personal Income Tax Notice of Proposed Assessment Information) – for individuals
FTB Form 5830C
FTB Form 5830C (Business Entity – Notice of Proposed Assessment Information) – for businesses
Understanding FTB Tax Penalties and Interest
California taxpayers have the right to appeal the notice, which must be submitted within 60 days of the NPA date. The appeal can be done online, on the FTB website. Keep in mind that while you may be filing an appeal of the FTB audit, the appeal does not prevent interest on what you may owe from accruing.
Once the appeal is received, the FTB has 120 days to contact you and establish a hearing date to review the appeal. The FTB may also ask you for additional documents and information regarding your case.
Need Help with a California Tax Audit? Contact an Experienced Tax Attorney Today!
Navigating a California tax audit can be challenging. If the FTB is auditing you or your business, consider talking with an experienced tax attorney to help guide you with the appeal and what your tax liability may be.
Allison Soares is a partner and tax attorney at Vanst Law. It doesn’t matter the issue: audits, collections, appeals, international disclosures, grumpy people— Allison enjoys fixing tax problems. In addition to her legal work, she has worked in accounting and utilizes that knowledge to her advantage while handling cases involving the IRS and state tax problems.
