California FTB Tax Audit Guide: What You Need to Know
What to Expect When You Receive an FTB Audit Letter
The audit process begins with a contact letter from the Franchise Tax Board. This document includes the auditor’s name, contact information, the tax years being audited, and whether the audit applies to you as an individual or your business.
Also included is a list of initial audit issues. It’s important to understand that this list is not final. As the FTB reviews your documents, new issues and tax years may be added.
“This is not an extensive list of the issues. Once FTB reviews your documents, the audit could be expanded.”
Responding to the Initial Contact
As soon as you receive the letter, reach out to the auditor. Even if you plan to hire a tax attorney or aren’t available immediately, schedule a meeting about 30 days out. This gives you time to gather records and prepare your position.
“Even if you’re not ready to meet, contact the auditor. Buy time to prepare.”
Understanding the FTB Audit Process
The Role of the IDR
Following your initial contact, the auditor will issue an Information Document Request (IDR). This outlines the records they need to evaluate your return. Provide only the documents requested and consider including a written explanation where necessary to clarify transactions.
If you need more time, request an extension. Keep the communication ongoing.
“We typically provide the narrative ahead of time with the records… to prevent misunderstandings.”
Why Your Explanation Matters
FTB auditors are unlikely to understand your business or its financial structure without additional context. Documentation alone may not tell the full story. A concise narrative can prevent misinterpretations and reduce unnecessary disputes.
“If you have a business, hire a tax attorney. There’s too much at stake not to.”
What Happens After Document Submission
Audit Issue Lists and Disagreements
After reviewing your records, the auditor may issue an Audit Issue List. This outlines any disagreements they have with your return. This is a key opportunity to clarify your position, correct misunderstandings, and provide further legal or factual support.
“Judges can disagree. Attorneys can disagree. And certainly the FTB will.”
Receiving a Notice of Proposed Assessment (NPA)
If issues remain unresolved, the FTB will issue a Notice of Proposed Assessment. You will have 30 days from the date listed on the notice to file a protest. The protest letter should address the legal merits of your case—not just the circumstances surrounding it.
“They’re not as concerned about the flood or COVID. They want to know: do you meet the legal standard?”
Get Help with your FTB Audit Now
FTB audits require clarity, consistency, and strategy. By understanding the audit cycle, maintaining open communication, and preparing strong legal and factual documentation, you give yourself the best chance at a successful resolution. If you are uncertain how to proceed, consult a tax attorney early.
