FTB Audit Procedures
in California
The California Franchise Tax Board (FTB) is responsible for administering personal income and corporate income taxes in the state. FTB conducts audits to verify compliance with California tax laws and ensure that taxpayers have correctly reported their income and deductions. Below is a summary of the audit process:
What Triggers an FTB Audit?
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Mismatch with IRS records (e.g., income reported to IRS but not to FTB)
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Large or unusual deductions
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Failure to file a return
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High audit risk industry (e.g., cash-heavy businesses)
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Referral from IRS audit
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Inconsistencies in K-1s, Schedule C, or investment income
Types of FTB Audits
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Correspondence Audit: Done by mail; requests specific documents
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Field Audit: In-person at your home, business, or accountant’s office
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Office Audit: In-person at an FTB field office
FTB Audit Process
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Audit Initiation Letter
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You’ll receive a formal Notice of Audit explaining the scope and period of review.
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Information Document Request (IDR)
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FTB will request documents like tax returns, receipts, ledgers, W-2s, 1099s, K-1s, bank statements.
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Review and Analysis
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FTB reviews the documents and may ask for clarifications or additional records.
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Audit Findings
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You’ll receive a Notice of Proposed Assessment (NPA) if FTB finds underreported income or improper deductions.
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Response Options
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You can agree and pay, or dispute it by filing a protest within 60 days.
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Final Notice & Appeal
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If unresolved, a Final Notice of Action is issued. You may appeal to the Office of Tax Appeals (OTA).
Common Audit Focus Areas
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Residency and sourcing of income (especially for multi-state taxpayers)
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Unreported 1099 income
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Real estate sales or like-kind exchanges (Form 593)
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Excessive business deductions (Schedule C)
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Flow-through income (S corps, partnerships)
Your Rights in an FTB Audit
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Right to representation by a CPA, EA, or attorney
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Right to know why you’re being audited
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Right to appeal and protest assessments
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Right to fair and respectful treatment
Best Practices to Prepare for an FTB Audit
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Retain supporting documentation for deductions and income
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Respond promptly and professionally to notices
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Don’t ignore deadlines (60-day protest rule is strict)
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Consider hiring a tax professional if audit is complex