No one who claims to be a nonresident of California wants to receive a letter from the Franchise Tax Board (“FTB”). In most cases, up to that point, you probably thought you were completely off their “radar.”
Then comes that day when you receive a form letter (i.e., FTB Form 4600) requesting/demanding that you file a tax return and inquiring about your California residence status. For many of my nonresident clients, such an event is beyond their imagination.
“How did this happen??,” they always ask. The answer is usually simple. These days, a request (demand) for a tax return is usually the result of an electronic disclosure made to the FTB from any of several sources, including the IRS, other state tax authorities, payors of various types of income (think Form 1099), certain business or investment entities in which you may be invested that are doing business in California and financial institutions to which you are making mortgage payments, among others. Other taxpayers make themselves targets for a Form 4600 inquiry letter by filing their federal tax return using a California address. After such disclosures are compared to the FTB database of filed tax returns with no match, the residence status inquiry letter, a questionnaire and a request for a tax return are generated automatically.