If you left California or never lived here but earned California-source income, own California-tied assets, or “do business” in the state, expect California’s Franchise Tax Board (FTB) and sister California tax agencies to eventually find you. They do it through (1) federal–state data exchanges, (2) nonresident withholding and information returns, (3) automated financial institution matches, (4) refund and payment intercept programs, and (5) classic but sophisticated skip-tracing and levy tools. Understanding these pipelines is the first step to keeping a matter civil and avoiding a criminal tax investigation or a damaging “eggshell”/“reverse-eggshell” scenario.
The Core Engines that Identify Nonresidents
Federal–State Data Sharing (26 U.S.C. § 6103)
The IRS shares return information with state tax authorities under formal agreements. California’s FTB receives multiple standardized data extracts that seed California under-reporter and non-filer programs, including CP2000/AUR-style leads. These IRS–FTB exchanges are expressly authorized and operational today.
Residency & California-Source Audits
You do not need to live in California to owe California tax. Nonresidents are taxed on California-source income (e.g., services performed in CA, rents from CA property, distributive share from CA partnerships). FTB’s guidance (Pub. 1017 and Pub. 1100) explains both what counts as California-source and how the state computes tax for part-year/nonresidents.
“Doing Business” Nexus for Entities
Corporations/LLCs are “doing business” in California—and thus within reach—if they meet statutory factor thresholds or actively engage in any transaction for financial gain within the state. FTB’s public guidance ties this to Revenue & Taxation Code § 23101.
Withholding at the Source: Nonresident Payor Reports
California state requires withholding on many payments of California-source income made to nonresidents (e.g., film/TV, professional services, real estate proceeds in certain contexts, pass-through distributions). The regulation implementing this (18 CCR § 18662-4) forces payors to remit tax and file information returns (Forms 592 series) that give FTB names, addresses, TINs, and amounts—creating a direct “locator” feed on out-of-state payees.
Automated Bank and Asset Discovery: FIRM / FIDM
California state runs an automated Financial Institution Records Match (FIRM) program (R&TC § 19266; 18 CCR § 19266). Financial institutions doing business in California must periodically match their customer files against FTB’s list of delinquent taxpayers and report matches. FIRM evolved from the child-support FIDM model; today it’s an FTB collections tool to identify accounts so the state can serve legal process (e.g., an Order to Withhold). Participation is implemented through FTB election forms and technical specifications. In practice, once an institution returns a match and is subject to California state jurisdiction, FTB can proceed with levy/withholding under state law.
Refund and Payment Intercepts: Finding You Through Your Money
Treasury Offset Program (TOP)
California partners with the U.S. Treasury’s Bureau of the Fiscal Service so federal tax refunds and other federal payments can be offset to satisfy delinquent California state income tax obligations—even when the taxpayer resides out of state.
Interagency Intercept (State Controller)
California also intercepts state payments (tax refunds, lottery winnings, unclaimed property) to satisfy debts. FTB administers this “Interagency Intercept” and receives debtor files from other agencies—another stream of verified identifiers and addresses.
Traditional but Rigorous Skip Tracing, Third-Party Contacts, and Legal Compulsion
FTB’s Collection Procedure Manual shows routine use of skip tracing to find employers, banks, property, and contact data; collectors issue requests for address, employment, and asset information, then escalate to involuntary actions if voluntary resolution fails. FTB summarizes the legal authority for orders to withhold (OTWs), levies, garnishments, liens, and sales across the Revenue & Taxation Code and Code of Civil Procedure. When needed, FTB can issue subpoenas and compel testimony under R&TC § 19504.
Cross-agency cooperation: Beyond tax agencies, California statutes authorize specified reciprocal information exchanges with local governments (e.g., to help cities administer business taxes)—yet another place your identifying information can surface.
CDTFA (sales/use/excise) playbook: California’s sales/use tax authority uses similar collection practices—beginning with passive efforts (mail/phone), then skip tracing and asset location, then active actions (liens/levies)—and coordinates with FTB for intercepts. If your operating footprint touches California sales/use regimes, CDTFA’s processes create parallel trails.
How a Civil Locator Pipeline Turns into Enforced Collection
Once FTB has a good address, employer, or bank, it can serve an Order to Withhold or other levy under R&TC §§ 18670–18671, 19231–19236, and related CCP provisions. FTB’s public guidance is blunt: OTWs can collect up to 100% of assets available (or the balance due, if less). As a practical matter, if your bank or employer does business in California (or receives process via centralized legal departments that recognize California legal process), your physical location out of state often won’t insulate your business or personal funds from California state collection.
Why “I Moved Away” Rarely Stops California from Finding You
Even if you moved and stopped filing in California, the state sees:
- IRS-fed deltas (e.g., W-2/1099/partnership K-1s showing California-source income or CA addresses).
- Nonresident withholding reports from payors (Forms 592), which give FTB your identifiers and a payment trail.
- Financial institution matches under FIRM.
- Intercept hits (California or federal refunds/benefits).
- Public filings (Secretary of State, county recorders, assessor rolls) and licensing/employment databases surfaced through skip tracing.
The IRS confirms the legality and modern scope of federal–state information sharing; FTB’s manuals show California’s systematic use of those feeds in under-reporter and non-filer programs.
Special focus: Residency and California-source income for nonresidents
For individuals, California’s sourcing rules matter more than your ZIP code. R&TC § 17951 (and Pub. 1017) taxes nonresidents on California-source income (services physically performed in CA; rents and royalties from CA property; pass-through income from CA partnerships/LLCs; sales of tangible personal property when title passes in CA, etc.). FTB’s Pub. 1100 explains how the effective rate method applies to part-year and nonresidents. Misunderstanding these rules is a common trigger for assessments years later—after the IRS and FTB have already cross-matched your data and penalties and interests have maximized.
For businesses, falling within “doing business” under § 23101 (including factor-presence thresholds) pulls you into return-filing and information-reporting duties that themselves generate locator data.
Where a Routine Civil Tax Enforcement Can Turn into a Nightmare Criminal Tax Investigation
Most collections are civil. But concealment of assets, nominee accounts, sham “out-of-state” structures, or false statements can turn a civil case into a life-altering criminal tax investigation. In IRS practice (mirrored in California experience), civil auditors flag “badges of fraud” to a Fraud Technical Advisor; a referral to CI can evolve into a reverse-eggshell inquiry that looks civil on the surface while evidence is built for criminal tax charges. If you see interviews being rescheduled or a sudden communication freeze, counsel should assume a potential pivot and move to protect privilege and control the record.
Practical Implications if You are Outside California State
- Expect notices even if you never filed in CA: Federal and payor-level information returns, city business-tax data, or FIRM matches can provide the first “hit.” If you ignore notices, the process escalates to liens, levies, and intercepts.
- Nonresident withholding is not the end of the story. Withholding is a prepayment and a breadcrumb trail; you still must file if you have California-source income to reconcile the liability and claim any refund.
- Bank, wage, and third-party levies are real and fast. FTB publicly states it will use OTWs, wage garnishments, and other levies where cooperation fails; its manuals describe active skip tracing to find where to serve them.
- TOP and Interagency Intercept make “hiding” expensive. Federal and state payments can be grabbed to satisfy California debts regardless of where you reside.
Contact the Tax Law Offices of David W. Klasing if Concerned California will or has Located You or Your Assets
If you live outside California but received an FTB notice, levy, or Form 592-B; if an IRS CP2000 references California-source items; or if you suspect a bank/employer match or intercept is underway, place privileged counsel between you and the California taxing authorities NOW. At the Tax Law Offices of David W. Klasing, our dual-licensed Civil and Criminal Tax Defense Attorneys & CPAs keep matters civil by controlling the record, preserving attorney-client and work-product protections, and extending privilege to consulting accountants through Kovel so you can get the accounting horsepower without sacrificing confidentiality. We engage FTB/CDTFA (and, where relevant, IRS) strategically to avoid criminal tax admissions, redirect information requests to alternative sources where appropriate, and neutralize “eggshell” or “reverse-eggshell” audit risks before they escalate into a criminal tax investigation.
For individuals, we build a defensible residency and sourcing file, cleanly separating California-source income from non-California income and documenting domicile moves to resolve non-filer and under-reporter issues while protecting privileges. For businesses, we map “doing business” nexus under R&TC § 23101 across sales, payroll, and property footprints; fix registration and filing gaps; and reconcile nonresident withholding trails (Forms 592 series) so breadcrumbs do not become assessments. Across both, we prioritize voluntary disclosures, amended returns, installment agreements, penalty relief, and, where appropriate, Offer in Compromise submissions—aimed at stopping liens, levies, wage garnishments, and refund/payment intercepts before they hit cash flow or reputationally sensitive stakeholders.
Bottom line: California’s locator pipelines, such as IRS-to-FTB data sharing, nonresident withholding reports, financial-institution matches, intercept programs, and disciplined skip tracing, make it far more efficient for the state to find you and your assets than for you to hide. The decisive step is to act before an Order to Withhold or garnishment lands. Call the Tax Law Offices of David W. Klasing at 800-681-1295 or use our contact form HERE for a reduced-rate initial consultation with a dual-licensed Criminal Tax Defense Attorney & CPA. We handle Federal and California state controversies nationwide via secure video or, by appointment, at our satellite offices—focused on damage control, business continuity, and keeping your matter out of the life-destroying criminal tax territory.
