The Situation
A $450K FTB Assessment Based on a Residency Dispute
Our client -- a business owner who had relocated from California to Nevada -- received a Notice of Proposed Assessment from the California Franchise Tax Board for approximately $450,000 in additional income tax, penalties, and interest. The FTB's position: despite claiming to have moved to Nevada, the client was still a California resident for tax purposes and owed California income tax on their entire worldwide income.
The client had been living and working primarily in Nevada for over a year before the FTB initiated their audit. They had a Nevada driver's license, voted in Nevada, and considered Nevada their permanent home. But the FTB had found enough California connections to challenge the move.
"California's residency rules are among the most aggressive in the country. The FTB doesn't care where you say you live -- they care about where the evidence says you live."
-- Sam Brotman, Managing Attorney
The Challenge
Overcoming California's Aggressive Residency Presumptions
California uses a multi-factor "closest connections" test to determine residency. The FTB examines dozens of factors: where you keep your belongings, where your family lives, where your doctors and dentists are, where your children go to school, where you spend your time, and much more. They apply a strong presumption that once you're a California resident, you remain one until you prove otherwise.
In our client's case, the FTB pointed to several factors suggesting continued California residency: the client maintained a California property (rented to a family member), still had California-based financial advisors, and had spent a significant number of days in California during the year in question for business purposes. The FTB argued these connections demonstrated the client had never truly left the state.
Our Approach
Building a Comprehensive Domicile Case With Documented Evidence
Winning a California residency case requires overwhelming, documented evidence. The FTB's audit team had already reviewed the surface-level facts and reached their conclusion. We needed to go deeper and present a complete picture that left no room for doubt.
Our California tax team assembled a comprehensive residency rebuttal that addressed every factor the FTB considers:
- Created a detailed day-by-day calendar reconstruction proving the client spent the majority of their time in Nevada
- Documented the client's Nevada domicile: home purchase records, utility accounts, voter registration, vehicle registration, bank accounts, and community involvement
- Addressed the California property directly -- demonstrated it was a rental, not a personal residence maintained for the client's use
- Showed that California business travel was exactly that -- travel, not evidence of continued residency
- Compiled declarations from Nevada neighbors, business associates, and community contacts confirming the client's presence and integration
We also conducted a thorough analysis of the FTB's assessment calculations and identified errors in how they computed the tax owed, further reducing the exposure even on the income the FTB might argue was California-sourced.
The Outcome
Assessment Reduced by 85%. Non-Residency Confirmed.
After reviewing our comprehensive response, the FTB reduced the assessment by approximately 85% -- from $450,000 to roughly $67,500. The remaining amount reflected California-source income that was legitimately taxable regardless of residency status (income from the California rental property and certain California-based business activities). The client's non-resident status for the tax year in question was effectively confirmed.
"California residency cases are won on documentation, not arguments. We built a case the FTB couldn't ignore -- and saved our client nearly $400K in the process."
-- Sam Brotman, Managing Attorney
Facing a California FTB residency audit? The documentation you assemble now determines your outcome. Book a free 15-minute call to discuss your situation.
Key Takeaways
What You Should Know About California Residency Disputes
Here's what you need to know:
- California's residency rules are uniquely aggressive. The FTB presumes you remain a resident until you prove otherwise. Moving to a no-income-tax state doesn't automatically end your California tax obligations.
- Documentation beats intention. It doesn't matter that you intended to move. What matters is whether your actions -- tracked across dozens of factors -- demonstrate a complete change of domicile.
- Day counts matter enormously. Track every day you spend in California and outside California. Calendar records are among the most powerful evidence in residency cases.
- Get professional help before the audit. If you're planning a move out of California, work with a tax attorney to structure the transition properly. It's far cheaper than fighting the FTB after the fact.
