When a long-time California state resident files a final “Part-Year Resident” or “Nonresident” return after relocating, many fear the Franchise Tax Board (FTB) will retaliate with extra scrutiny. California does not maintain a secret “ex-resident” audit list. Still, interstate moves, data sharing with the IRS, and certain “red flags” can trigger a high-risk residency focused tax audit, potentially morphing into an exponentially worse criminal tax investigation if the taxpayer has intentionally cheated on his California tax return(s).
At the Tax Law Offices of David W. Klasing, our nationally recognized, award-winning team of dual-licensed Tax Attorney-CPAs brings nearly three decades of combined experience to every FTB residency audit, appeal, and protest we handle. From the FTB’s residency & FTB’s sourcing definitions and FTB audit triggers to best practices for documentation—our dual-licensed Civil and Criminal Tax Defense Attorneys & CPAs can guide ex-residents through every phase of a California residency & sourcing audit and show why engaging privileged counsel at the outset is critical.
We understand the latest California residency rules and procedural nuances, and we focus on four core goals in every matter:
- Holding your California-tax exposure to the absolute minimum,
- Equipping you with clear, actionable information for strategic decision-making,
- Safeguarding your liberty by minimizing any potential criminal-tax risk especially where you have been intentionally fraudulent with California Tax Filings, and
- Ensuring full compliance with California Tax Law going forward.
If you’ve received an FTB residency information request or an adverse determination notice, don’t delay. Call (888) 564-1409 for a reduced-rate initial consultation or schedule online through our encrypted portal.
How California Defines “Resident”—and Why Leaving isn’t Always Leaving
California classifies individuals as:
- Domicile residents who keep a permanent home in California and intend to return;
- Statutory residents, non-domiciliaries present over nine months per tax year;
- Part-year residents who change their principal residence during the year;
- Nonresidents whose permanent ties and primary place of business lie elsewhere.
Filing a residency return prompts the FTB’s “facts and circumstances” test. They weigh dozens of factors—driver’s license exchanges, voter registration, property sales, professional license transfers, family moves, school enrollments, and even healthcare provider locations. Flashing a new license alone won’t suffice; absent compelling proof you severed California state ties, the FTB may deem you a resident, or part year resident or determine you have unreported California Source income and recapture previously excluded or unreported California taxable income.
States with high tax rates, such as California, use tax audits to allege that your out-of-state move was a tax dodge. Those most at risk include taxpayers who:
- Depart for a state with a much lower tax burden.
- Retain homes, businesses, or professional licenses in California.
- Move just before liquidating stock, selling a business, or other significant transactions.
- Are in a high-income bracket.
- In fact, intentionally maintain continuing California residence or ignore significant continuing contacts with California or ignore income properly sourced to California especially where fraudulent representations are made over multiple tax years which will create California Criminal Tax Exposure.
Auditors go where the money is. If you stand to save hundreds of thousands in state taxes, the FTB may ultimately scrutinize your out of state domicile claim or examine a cessation in California income, payroll, excise or sales tax filings.
The Residency Audit Process—What to Expect
Automated Notification
When the FTB’s data-matching systems detect your new out-of-state address—via federal returns, DMV records, voter registration, or third-party data—you’ll receive an initial notice alerting you to a potential residency review.
Residency Information Request (RIR)
Commonly issued as FTB Letter 1915 or Form 4600, this request demands documentary proof of your claimed nonresident status:
- Out-of-state lease or deed
- New-state utility bills or first-service statements
- California home-sale or rental closing documents
- Driver’s-license and voter-registration exchange confirmations
- Employment contracts showing work performed outside of California
- Evidence of family relocation (school enrollment, spouse’s employment)
Pro Tip: Your electronic footprint will always betray you in a residency audit. Every time you use your credit or debit cards your physical location is irrefutably known to a California taxing authority. You can’t defensibly claim to be a Texis resident when you’re religiously buying tacos in California every Tuesday evening.
Document Production
You’ll be asked to submit months—or even years—of third-party statements under penalty of perjury:
- Bank and brokerage records
- Credit card records
- Medical and insurance bills
- Voting-registration confirmations
- Club dues or professional membership receipts
Income Reallocation
Auditors reallocate income using Form 540NR, Schedule CA (540NR) for wages, interest, dividends, and other federal AGI items, and Schedule S (540NR) for partnership and S-corporation passthrough income. California-source rules govern services performed in the state, rents from California property, and California-based business income.
Findings and Appeals
If the FTB concludes you remained a resident or part-year resident for periods you claimed nonresident status, you will face back-tax assessments, up to 10 percent civil tax penalties (e.g., under R&TC § 19132), and interest. You then have 60 days to file a petition with the California Office of Tax Appeals for an independent hearing. If badges of fraud are apparent in your fact pattern that indicates you fraudulently reported (or failed to report), you may also face California criminal tax prosecution for intentional conduct.
It is easy to become lost in California’s complicated tax appeal system. It would be wise to consult our dual-licensed tax California tax attorneys and CPAs if you have any questions or concerns about a notice from the FTB, EDD, CDTFA (formerly BOE), IRS, or other tax authorities. For a reduced-rate tax consultation concerning an FTB audit, an FTB protest letter, CDTFA or Office of Tax Appeals (OTA) procedures, or tax relief options, contact the Tax Law Offices of David W. Klasing online or call us today at (888) 564-1409.
Creating a Bulleted Paper Trail
Hands-on documentation often wins a residency audit. Beyond driver’s licenses and voter registration, it would be wise to:
- Register vehicles and update your mailing address for banks, utilities, and subscriptions.
- Revise estate-planning documents to reflect your new state’s laws.
- Transfer professional licenses, medical providers, and school enrollments.
- Lease or buy property and keep closing statements, mortgage records, and first utility bills.
- Store family heirlooms, pets, and safe deposit box contents at your new address.
Contact the Tax Law Offices of David W. Klasing if You’re Facing a California Residency Audit
California state residency audits probe every corner of your life, from bank statements to social ties, and most taxpayers only seek help once the FTB’s Information Document Request has already arrived. At the Tax Law Offices of David W. Klasing, we step in immediately to rein in the scope of document demands and craft a fact-based narrative—education transfers, employment contracts, family relocations—that leaves no doubt your new state is home, not a temporary tax dodge.
While most residency audits conclude with civil adjustments, intentional misclassification of large, multi-year California state tax income or collusion with advisors to manufacture false ties can trigger a California criminal tax referral. Our dual-licensed Civil and Criminal Tax Defense Attorneys & CPAs deploy Kovel letters to extend the privilege to forensic accountants, isolate any California criminal tax triggers, and, if necessary, guide you through a California voluntary criminal tax disclosure—keeping the matter on the civil track and your record clear.
Don’t let California’s state-high tax rates and broad subpoena power trap you in an endless high-risk tax audit. Call 800-681-1295 or use our encrypted online scheduler for a reduced-rate initial residency-audit consultation. David W. Klasing—one of fewer than 3,000 professionals nationwide holding an Attorney-CPA license and having earned a Master’s in Taxation—will personally oversee your defense, flying to your location without billing travel time or expenses, and guide you from initial notice through the Office of Tax Appeals representation and beyond.
