Ultimate Guide to FTB Audits: What California Taxpayers Need to Know
If you’ve received a notice from the Franchise Tax Board (FTB) in California, you’re not alone — but you are under review. What triggers a California FTB audit is often misunderstood, but it can involve unfiled returns, inconsistencies in income, questionable deductions, or even referrals from the IRS. And unlike federal cases, California’s FTB runs its own aggressive audit system with faster timelines.
In this guide, we’ll break down everything you need to know about FTB audits, including:
- How they start
- What documents you’ll need
- How to respond
- What happens if you ignore it
- And how to protect yourself or your business
Why Did I Get Selected for an FTB Audit?
The scope can vary. Some audits focus on one issue; others expand into multiple years. What to expect during an FTB field audit usually includes:
- A mismatch between your California and federal returns
- A referral from the IRS after an audit
- High-value deductions (like mortgage interest, charitable giving, or business expenses)
- Income underreporting
- Unfiled returns or late filings
- Prior history of adjustments or penalties
- Cash-intensive businesses with low reported revenue
FTB also uses sophisticated data-matching tools to compare your return against DMV records, 1099s, real estate transfers, and more.
What Does the FTB Look at During an Audit?
The scope of an audit can vary. Some are narrow — covering a single deduction — while others expand into multiple years and income streams.
Common areas of review include:
- Business income and expense documentation (especially for sole proprietors or LLCs)
- Rental property income and expenses
- Real estate sales and 1031 exchanges
- Schedule C deductions
- Flow-through income from S-Corps or partnerships
- Out-of-state income or residency issues
- Estimated tax payments or withholdings
- Capital gains from stock or crypto sales
What Records Should I Provide?
You’ll typically receive an initial information document request (IDR) from the auditor. This may include:
- Bank statements
- Credit card statements
- Copies of invoices or receipts
- Mileage logs
- Lease agreements
- Copies of prior tax returns
- Proof of business purpose for deductions
- Partnership or S-Corp K-1s
- Proof of residency (if there's a domicile or sourcing issue)
Do not hand over everything blindly. You have a right to respond strategically — and with help from a qualified professional.
Can I Dispute the FTB’s Findings?
Yes. If the auditor proposes adjustments you disagree with, you’ll have options:
- Initial protest: You can file a written protest within 60 days of receiving the Notice of Proposed Assessment (NPA).
- Administrative appeal: If unresolved, you can file an appeal with the Office of Tax Appeals (OTA).
- Settlement: You may be able to negotiate a settlement with the FTB Settlement Bureau.
- Payment plan or Offer in Compromise: If you owe money, there are resolution options available.
For taxpayers facing heavy fines, there may be California FTB penalty relief options available depending on your circumstances.
What Happens If You Ignore an FTB Audit?
Failing to respond can lead to:
- An audit conducted
without your input, based on estimates
- A
Notice of Proposed Assessment (NPA) that becomes final after 60 days
- Full liability enforced through:
- Wage garnishment
- Bank levies
- Franchise suspension (for business entities)
- Tax liens
The FTB does not need a court order to begin aggressive collections once an assessment is final.
How Is an FTB Audit Different from an IRS Audit?
| Topic | IRS Audit | FTB Audit |
|---|---|---|
| Trigger | Often national, triggered by federal anomalies | Includes state-specific flags |
| Scope | May not include state implications | Can piggyback on IRS findings, but run separately |
| Appeal Process | Tax Court or U.S. District Court | California Office of Tax Appeals (OTA) |
| Enforcement | Slower collections timeline | Faster collections with lien/levy tools |
How We Help at Boulanger CPA
We don’t just respond to the FTB — we lead the defense. Our CPA-led audit representation includes:
- Reviewing your audit notice and transcript history
- Strategically limiting the audit scope
- Assembling records in your favor
- Identifying areas where the FTB overstepped
- Filing protests or appeals, if necessary
- Negotiating settlements or payment resolutions
- Ensuring that IRS findings don’t unfairly inflate your state liability
We believe in protecting taxpayers and business owners from unfair treatment. That’s why we encourage every client to explore more in Defend What’s Yours — our philosophy of standing strong against aggressive tax enforcement.
Related Help & Resources
- FTB Audit Triggers: Why You Got Selected
- FTB Substitute Return – What It Means and How to Respond
- FTB vs. IRS Audits – Key Differences Explained
- California Tax Enforcement Hub
- FTB Tax Relief Services in Orange County
Frequently Asked Questions
What triggers a California FTB audit?
Common triggers include mismatches between federal and state returns, large deductions, unreported income, and referrals from the IRS.
How far back can the FTB audit?
The FTB usually audits up to four years, but may extend further if fraud or substantial underreporting is suspected.
What records does the FTB request?
Expect to provide tax returns, bank statements, receipts, invoices, payroll records, and supporting documentation for deductions and credits.
What happens if I disagree with the audit results?
You can file a protest with the FTB and, if necessary, appeal to the Office of Tax Appeals. Professional representation is strongly recommended.
Do FTB audits lead to IRS involvement?
Yes. The FTB shares findings with the IRS, and IRS adjustments are often matched by California audits of the same years.
Can penalties from an FTB audit be reduced?
Yes. You may request penalty abatement if you can show reasonable cause, such as natural disaster, illness, or reliance on professional advice.
Should I hire a CPA for FTB audits?
Yes. A CPA helps navigate the process, ensures compliance, and protects you from unnecessary tax assessments.
📣 About the Author
Marc Boulanger, CPA is the founder of Boulanger CPA and Consulting PC, a boutique tax resolution firm based in Orange County, California and trusted by high-income individuals and business owners across Southern California.
He is the author of Defend What’s Yours: A California Taxpayer’s Guide to Beating the IRS and FTB at Their Own Game, available now on Amazon. The book offers a step-by-step plan for resolving IRS and FTB tax debt without losing your business, your home, or your peace of mind.
With over a decade of experience resolving high-stakes IRS and State tax matters, Marc brings strategic insight to complex cases involving wage garnishments, bank levies, unfiled returns, and six-figure tax debts. He is known for helping clients reduce or eliminate tax liabilities through expertly negotiated settlements and compliance plans.
Marc is a Certified Public Accountant licensed in California and Oklahoma and holds the designation of Certified Tax Representation Consultant. He is a member of the American Society of Tax Problem Solvers (ASTPS) — the national organization founded by the educators and practitioners who have trained thousands of CPAs, EAs, and tax attorneys in IRS representation strategy.
Every case is handled with discretion, proven methodology, and direct CPA-led representation — not call center scripts.
📍 Learn more at www.orangecounty.cpa or call (657) 218-5700.
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