San Bernardino FTB Attorney (Inland Empire)
The California Franchise Tax Board operates statewide, but the Inland Empire has its own FTB profile. The region's economy — logistics, construction, light manufacturing, cash-intensive small businesses — produces a specific set of FTB issues that I see repeatedly. Here is what I typically see with San Bernardino and Inland Empire clients and how I approach it.
What the FTB Does and How It Reaches San Bernardino Taxpayers
The California Franchise Tax Board is California's primary income tax authority — it taxes California residents on their worldwide income and nonresidents on California-source income.
If you lived in California at any point during the year, the FTB can tax all your income for that period. If you're a nonresident with income sourced to California — wages from a California employer, income from a California business, royalties from California property — the FTB has a claim on that income regardless of where you live.
FTB audits start in several ways. Information-matching is the most common trigger: the FTB receives W-2s, 1099s, and K-1s and checks them against what was reported. A mismatch produces a notice. For businesses, the FTB also looks at whether income reported on the California return is consistent with what the business reports to the CDTFA for sales tax and to the EDD for payroll tax purposes. A second significant trigger is a federal audit adjustment — the IRS and FTB share audit information, and an IRS finding almost always prompts FTB to open its own examination. Cash-intensive businesses and construction contractors are statistically audited at elevated rates.
The FTB collection statute is 20 years under Cal. R&TC § 19255 — twice the IRS's 10-year window. 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 judgment.
Common FTB Issues in San Bernardino
Cash-Intensive Businesses and Unreported Income Audits
The FTB audits cash-intensive businesses using the same indirect income reconstruction methods the IRS uses — bank deposit analysis, markup analysis, and net worth analysis — and it does so on California returns independently of any federal audit.
The Inland Empire has a high concentration of cash-intensive businesses: restaurants, auto repair shops, nail salons, small retail, and service businesses that receive significant cash payments. The FTB's approach to these audits follows a predictable pattern. The auditor starts with your reported gross income and looks at whether it's consistent with your bank deposits, your cost of goods sold, and standard industry markups. If the reported income looks low relative to what the business should be generating, the FTB issues a proposed assessment based on one of the indirect methods.
The bank deposit method takes your total bank deposits and subtracts documented non-income items (loans, transfers, refunds). What's left is treated as income. The markup method applies industry-standard gross profit margins to your cost of goods sold to estimate what your gross income should be, then compares that to what you reported. Both methods can produce overestimates if the auditor doesn't account for cash that was deposited but came from non-income sources.
These audits require careful documentation work. If you can demonstrate that certain deposits were loans, transfers between accounts, or returned items — and you have records to support that — the assessment goes down. The FTB's initial calculation is often a starting point, not the final word.
Construction Contractors and Multi-Agency Exposure
California requires contractors to be licensed with the California Contractors State License Board (CSLB), and operating unlicensed exposes a contractor to FTB, CDTFA, and EDD scrutiny simultaneously.
Construction is a major Inland Empire industry, and contractor tax issues are among the most frequent matters I handle for this region. The FTB piece is the income tax: did the contractor report all revenue? Did the contractor properly handle subcontractor payments and 1099 reporting? Are subcontractors classified correctly for California payroll tax purposes?
The worker classification piece is particularly important. Under California's AB 5 (codified at Cal. Labor Code § 2750.3), the ABC test governs worker classification for California purposes — and that classification affects FTB (income withholding), EDD (payroll taxes), and CDTFA (depending on the work). If workers who were treated as independent contractors are reclassified as employees, the tax consequences ripple across all three agencies. I see construction businesses where the FTB, EDD, and CDTFA are all running separate examinations based on the same underlying classification issue, and the cases need to be managed together.
Logistics and Warehouse Worker Classification
California's AB 5 worker classification rules apply fully to FTB, EDD, and CDTFA matters, and the Inland Empire's logistics sector generates a large number of these classification disputes.
The Inland Empire is one of the largest logistics and warehousing markets in the country, and the gig-style workforce arrangements common in this industry — independent contractor drivers, warehouse workers, last-mile delivery contractors — are exactly what AB 5 was designed to reach. The ABC test presumes that workers are employees unless the hiring entity can show all three prongs: (A) the worker is free from the company's control, (B) the worker performs work outside the company's usual course of business, and (C) the worker has an independently established trade or occupation.
For most logistics workers, prong (B) is the problem: if you're a delivery company and you hire delivery drivers, those drivers are probably performing work within your usual course of business. Misclassification in the logistics sector generates FTB liability because the employer should have withheld California income tax from those workers' wages. When the employer didn't, the FTB's position is that the employer owes the unwithheld taxes.
FTB Audits After IRS Adjustments
Under Cal. R&TC § 18622, if the IRS adjusts your federal return, you must notify the FTB within six months of the final federal determination. Many Inland Empire business owners don't know this requirement exists. Failing to notify the FTB leaves the FTB's statute of limitations open indefinitely for that adjustment. I handle multiple cases each year from this region where a federal audit from several years ago produced an FTB liability because no one filed the California report of federal changes.
FTB Audit Defense
An FTB audit begins with a written notice identifying the issues under review and requesting documentation.
Correspondence audits are handled by mail. The FTB requests records, you respond, and the FTB issues its determination based on what it received. Field audits involve a more detailed examination and sometimes in-person interviews, and are more common in larger dollar cases and business audits. For cash-intensive and construction business audits, the FTB's document requests typically include bank statements, cash register records, sales journals, cost records, and any contracts or work orders that document the business's revenue.
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 written protest. The protest is your complete legal and factual response. After the FTB reviews the protest, it issues a Notice of Action. If the matter isn't resolved, you can appeal to the Office of Tax Appeals (OTA) in Sacramento.
The 60-day protest deadline is firm. If you miss it, the NPA becomes a final assessment.
FTB Collections Defense
The FTB has 20 years to collect a final assessment under Cal. R&TC § 19255 — old FTB debts don't disappear on their own.
A Notice of State Tax Lien is the FTB's first formal collection step after assessment. It attaches to California real property and is a public record, no court order required. If the lien doesn't produce payment, the FTB escalates to an Order to Withhold against bank accounts and an Earnings Withholding Order to employers. The FTB can also intercept California tax refunds and suspend your driver's license and professional licenses.
For Inland Empire business owners carrying old FTB balances, the practical question is often: what's the most efficient way to resolve this? An installment agreement is the most straightforward option if you can pay over time. If you genuinely can't pay the full balance, currently not collectible status pauses collection activity. California's Offer in Compromise program under Cal. R&TC § 19443 is available if your financial position won't support paying the full amount — the FTB evaluates your assets and income and accepts the offer if its realistic collection potential is less than what you owe.
One important note: once the FTB records a Notice of State Tax Lien, it affects your ability to sell or refinance real property in California. If you have real estate that you're trying to sell or refinance and there's an FTB lien on it, the lien needs to be addressed before the transaction can close.
California Residency and Source Income Issues
California taxes nonresidents on California-source income, and even after leaving California, income earned from California sources remains subject to FTB.
For San Bernardino and Inland Empire taxpayers, the most common post-departure California source income issues are: income from California-based partnerships and S-corporations that continue operating after you move, wages from California employers for work performed in California, and real estate income from California property. The FTB's sourcing rules are in Cal. R&TC § 17951.
If you've moved out of California and are receiving income from a California business — as a K-1 partner, S-corp shareholder, or sole proprietor with California operations — that income is California-source income subject to FTB. The residency rules in FTB Publication 1031 govern whether you're a California resident or nonresident, and the distinction determines whether the FTB taxes your entire income or just the California-source portion.
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.
The Inland Empire is a market I know well — cash business audits, contractor issues, and multi-agency exposures involving the FTB, EDD, and CDTFA simultaneously are cases I handle regularly. FTB matters are almost entirely conducted in writing, so distance isn't a barrier. If you have an FTB notice, an unreported income assessment, or a collections issue, I'm happy to discuss it. Book a free 15-minute call and we'll work through what you're dealing with.
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 information, so an IRS adjustment often triggers an FTB examination. FTB auditors issue a Notice of Proposed Assessment (FTB 4107); the IRS uses a 30-day letter and Form 4549. FTB protests go to FTB's appeals unit, then to the Office of Tax Appeals (OTA) in Sacramento if unresolved. For Inland Empire business owners, the FTB and IRS frequently audit simultaneously, particularly in cash-intensive and construction businesses, and both need to be managed.
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, generally. A substantial income understatement (over 25%) extends this to six years. No time limit applies to unfiled or fraudulent returns. Failing to report a federal adjustment to the FTB within six months of a final IRS determination under Cal. R&TC § 18622 leaves the window open indefinitely for that issue.
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 California real property. The 20-year collection statute under Cal. R&TC § 19255 means old balances don't age out quickly — an FTB debt from eight years ago is well within the collection 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 the full balance is realistically unlikely. California does not require the IRS's 20% non-refundable deposit at submission. For Inland Empire business owners with FTB balances from prior years — particularly those arising from audits that added back significant income — the OIC can be a practical resolution when assets and cash flow don't support full payment.