Sacramento FTB Attorney
The California Franchise Tax Board operates statewide, but Sacramento-area taxpayers have a relationship with the FTB that most Californians don't — the FTB's headquarters is literally across town, in Rancho Cordova. That proximity doesn't change how an audit works, but it does shape the local landscape. I handle FTB matters throughout California, and here is what I typically see from Sacramento-area clients and how I approach it.
What the FTB Does and How It Reaches Sacramento Taxpayers
The California Franchise Tax Board is California's primary income tax authority — it taxes California residents on all their income and nonresidents on income sourced to California.
If you were a California resident at any point during the year, your worldwide income for that period is subject to California tax. If you're a nonresident receiving income from California sources — wages from a California employer, K-1 income from a California business, income from California real estate — the FTB has a claim on that income regardless of where you live.
FTB audits are typically triggered by information-matching: the FTB receives W-2s, 1099s, and K-1s and compares them to what you reported. A mismatch generates a notice. A second common trigger is a federal audit adjustment. Under the federal-state information-sharing agreement, the IRS reports its adjustments to the FTB, and the FTB will almost always open its own examination based on those findings. High-income returns and returns with large deductions are also statistically selected at higher rates.
The FTB collection statute is 20 years from the date of final assessment under Cal. R&TC § 19255. The IRS has 10 years. That longer window is one of the features of FTB collections that clients are most surprised by — a balance from eight years ago is still well within the FTB's collection period. The FTB's enforcement tools include intercepting California tax refunds, issuing an Order to Withhold against bank accounts, sending an Earnings Withholding Order to your employer, suspending your California driver's license and professional licenses, and recording a Notice of State Tax Lien against California real property, all without a court order.
Common FTB Issues in Sacramento
State Government Pension and Retirement Income
California taxes retirement income, including CalPERS and CalSTRS pension distributions, as ordinary income in the year received.
Sacramento has a high concentration of current and former state and local government employees. CalPERS (California Public Employees' Retirement System) and CalSTRS (California State Teachers' Retirement System) pensions are not exempt from California income tax, even though they are partially excluded from federal self-employment tax. If you move out of California after retiring, your California pension income is generally still California-source income subject to FTB tax — the income was earned through California employment, and California takes the position that the source follows the employment.
The one significant protection retirees have: federal law (4 U.S.C. § 114) prohibits states from taxing pension income of nonresidents if the income is received from a qualified retirement plan. This applies to CalPERS and CalSTRS. If you've retired and moved out of California, you may not owe FTB tax on your pension distributions — but the analysis depends on how the distributions are structured, and the FTB doesn't always apply this correctly on initial assessment.
Agricultural Income and Farm Loss Issues
California conforms to most federal farm tax rules but has specific FTB issues around California-sourced agricultural income and passive activity loss limitations.
Sacramento Valley agriculture is a significant part of the regional economy, and farm income questions come up regularly in FTB audits. The core issue in most FTB farm audits is passive activity: if you own farmland that you rent to a tenant farmer, the FTB treats that rental income as passive activity income under the California conformity rules. Farm losses from a passive activity generally can't offset active income. The FTB's approach to material participation in farming operations — and what it takes to be treated as actively involved rather than a passive investor — follows federal rules under IRC § 469 with California-specific modifications.
Water rights income is a related issue. If you receive payments for the use of water rights appurtenant to California agricultural land, that income is California-source income subject to FTB regardless of where you live. I see this come up in cases where farmland has been partially sold or where water rights have been leased separately from the underlying land.
Cannabis Business FTB Issues
California-licensed cannabis operators face overlapping FTB, CDTFA, and EDD tax obligations that create more complexity than most industries.
Cannabis businesses are legal under California law but remain illegal under federal law. That federal illegality has significant tax consequences: cannabis operators cannot deduct ordinary business expenses under IRC § 280E for federal income tax purposes, which means federal taxable income is often much higher than actual economic income. California, however, does not conform to IRC § 280E for state income tax purposes — California allows cannabis businesses to deduct ordinary business expenses on their state returns. That means a cannabis operator can have a very different taxable income on their California return versus their federal return, and FTB auditors need to understand the deconformity analysis.
Separately, the FTB audits cash-intensive businesses at elevated rates, and most cannabis retail operations still do significant cash business. The FTB uses the same indirect income reconstruction methods it applies in other cash business audits — bank deposit analysis, markup analysis, and net worth analysis — to identify potential unreported income.
FTB Audits After IRS Adjustments
Under Cal. R&TC § 18622, if the IRS makes a final adjustment to your federal return, you must notify the FTB within six months. The notification requirement applies even if the federal adjustment results in additional federal tax — and especially when it does. Failing to notify the FTB leaves the FTB's statute of limitations open indefinitely for that issue. I handle a number of Sacramento-area cases each year where a federal audit from several years ago produced FTB liability because no one filed the required report of federal changes.
FTB Audit Defense
An FTB audit begins with a written examination notice identifying the issues and requesting documentation.
Correspondence audits are handled by mail. The FTB requests specific records, you respond, and the FTB issues its determination based on the record. Field audits — assigned for larger dollar cases and residency disputes — involve an FTB auditor reviewing your records in more depth, sometimes with interviews. The document requests in a field audit can be quite broad, particularly if the FTB is questioning your residency or the source of income items.
If the audit goes against you, the FTB issues a Notice of Proposed Assessment (FTB 4107). You have 60 days from the NPA date to file a protest. The protest is your written legal response — the place to make all your factual and legal arguments. After the FTB reviews the protest, it issues a Notice of Action. If that doesn't resolve the matter, you can appeal to the Office of Tax Appeals (OTA) in Sacramento. For Sacramento clients, the OTA is practically local, which makes in-person hearings more feasible if the amount at issue warrants it.
Missing the 60-day protest window means the NPA becomes a final assessment. That's a deadline worth watching.
FTB Collections Defense
Once a final FTB assessment exists, the FTB collection machine moves on a 20-year clock under Cal. R&TC § 19255 — significantly longer than the IRS's 10-year Collection Statute Expiration Date.
A Notice of State Tax Lien is typically the FTB's first formal collection step after assessment. The lien attaches to California real property and becomes a public record. No court order is required. If the lien doesn't produce payment, the FTB can issue an Order to Withhold against your bank accounts or an Earnings Withholding Order to your employer.
Resolution options include installment agreements, currently not collectible status (if you genuinely have no ability to pay), and California's Offer in Compromise program under Cal. R&TC § 19443. The OIC requires a complete financial disclosure and a settlement offer. The FTB evaluates whether its realistic collection potential exceeds the offer amount. For Sacramento taxpayers, the FTB's Sacramento-area offices handle most of the collections work, so the process is relatively direct once an installment agreement or OIC is submitted.
California Residency and Source Income Issues
Even after leaving California, you may owe FTB tax on income with California sources.
This catches a lot of former California residents off guard. If you were a California resident and received deferred compensation — including pension distributions, deferred salary, and equity compensation — that was earned during your California residency, California takes the position that this income retains its California character. The specific rules depend on the type of income and the timing of the payment, but the general principle is that California can tax income you earned here even if you receive it after moving away.
For Sacramento-area taxpayers with state government backgrounds, the pension rules (discussed above) are the most common version of this issue. For business owners and executives, continuing income from California partnerships, S-corporations, and LLCs after leaving the state is another common source of FTB obligation that persists past California residency. Cal. R&TC § 17951 governs the sourcing rules for California-source income.
About Sam Brotman
I'm Sam Brotman, a tax attorney and CPA based in San Diego. I hold a JD and an LL.M. in Taxation. I've represented more than 400 clients in tax audits and disputes, with over $1 billion resolved across federal and state tax controversy — including FTB matters throughout California.
FTB matters are handled almost entirely in writing, which means location isn't a barrier. I handle FTB audits, protests, OTA appeals, and collection resolutions for clients anywhere in California. If you're dealing with an FTB notice, a retirement income question, or a cannabis business audit, I'm happy to discuss it. Book a free 15-minute call and we'll figure out where things stand.
Frequently Asked Questions
What is the difference between a California FTB audit and an IRS audit?
The FTB audits California state income tax returns; the IRS audits federal returns. The agencies share audit information, so a federal adjustment almost always triggers an FTB examination. FTB auditors issue a Notice of Proposed Assessment (FTB 4107) when the audit goes against you; the IRS uses a 30-day letter and Form 4549. The FTB protest process runs through FTB's appeals unit, then to the Office of Tax Appeals (OTA) — which is also located in Sacramento.
How long does the FTB have to audit me?
Four years from the later of the return due date or filing date under Cal. R&TC § 19057 is the standard period. A substantial income understatement (over 25%) extends this to six years. No limit applies if you never filed or filed fraudulently. One specific Sacramento-area issue: if you have a CalPERS or CalSTRS distribution and the FTB disagrees with how it was reported, the applicable period depends on when the issue was first raised — missing the report of a federal change under Cal. R&TC § 18622 leaves the window open indefinitely.
Can the FTB garnish my wages or levy my bank account?
Yes. The FTB issues an Order to Withhold to financial institutions and an Earnings Withholding Order to employers, both without a court judgment. It also intercepts California tax refunds, suspends driver's and professional licenses, and records a Notice of State Tax Lien against real property. The FTB collection statute is 20 years under Cal. R&TC § 19255 — double the IRS's 10-year window.
Does California have an Offer in Compromise program?
Yes, under Cal. R&TC § 19443. You submit a financial disclosure and a settlement offer; the FTB accepts it if collecting more than the offer amount is unlikely. California doesn't require the IRS's 20% non-refundable deposit at submission. For Sacramento clients, the OTA is local, which can make the full dispute and resolution process more accessible for contested matters.