By Robert S. Schriebman
You have just completed an IRS income tax audit. The IRS has assessed taxes, penalties, and interest. You have agreed to the IRS adjustments. You do not wish to file any type of appeal or challenge the IRS audit in the U.S. Tax Court. Must you notify the FTB of the results of your IRS audit?
On September 1, 2014, the FTB issued a news release reminding taxpayers of their duty to notify the FTB at the completion of an IRS income tax examination. There is no duty on your part to notify the FTB if the IRS conducts an employment tax, estate/gift tax, or excise tax examination. The rules relating to notifying the FTB relate only to final IRS income tax assessments.
On the other hand, you do not have a duty to notify the IRS if you are audited by the FTB, EDD, or SBE. The duty to notify the FTB is very limited and only relates to finalized IRS income tax changes. In other words, if you disagree with an IRS audit and you wish to file an appeal or take your matter to the U.S. Tax Court there is no duty to notify the FTB until your pending IRS matter becomes final.
Your Responsibility to Notify the FTB In A Nutshell
According to the FTB press release of September 1, 2014, if the IRS audits you and completes its examination you must notify the FTB of the final federal determination within six months. The notification should disclose any IRS assessed penalties, adjustments, or corrections resulting from math errors, tax credit adjustments, other tax adjustments, or supplemental income even if the IRS did not examine these adjustments. The statute of limitations for assessment of California income tax based on the federal changes is two years, four years, or open, depending on whether the FTB receives notification of the federal changes (a) within six months; (b) receives notification after six months or; (c) does not receive notification at all
FTB refunds are tricky. One must be constantly vigilant because the FTB refund statutes are numerous and complicated.