San Francisco FTB Attorney
The California Franchise Tax Board operates statewide, but the issues Bay Area taxpayers face have a distinct local character. I've handled a lot of FTB matters for San Francisco and Silicon Valley clients over the years, and the same set of issues keeps coming up: residency disputes involving people who left California for low-tax states, equity compensation audits tied to stock options and RSUs, and pass-through entity questions that hit closely held businesses hard. Here is what I typically see in this market and how I approach it.
What the FTB Does and How It Reaches San Francisco Taxpayers
The California Franchise Tax Board is California's primary income tax authority, with jurisdiction to tax California residents on all their income and nonresidents on income sourced to California.
If you lived in California at any point during the year, the FTB can tax your worldwide income for that portion of the year. If you're a nonresident with California-source income — wages from a California employer, income from a California partnership, royalties from California property — the FTB has a claim on that income regardless of where you live now.
FTB audits start in a few different ways. The most common trigger is an information-matching discrepancy: the FTB receives W-2s, 1099s, and K-1s from employers and payers and matches them to what you reported. If something doesn't match, you'll receive a notice. A second common trigger is an IRS audit finding. Under a federal-state information-sharing agreement, the IRS notifies the FTB whenever it adjusts a federal return. If the IRS says you owe more federal income tax, the FTB will almost always open its own examination. Statistical selection accounts for a smaller share of FTB audits, particularly for high-income returns and returns with large deductions relative to income.
FTB collections differ from IRS collections in one important respect: the FTB has 20 years to collect a tax assessment from the date it becomes final, under Cal. R&TC § 19255. The IRS has 10 years. That longer window means FTB debts have a much longer shelf life, and a tax balance that feels old may still be fully collectible. The FTB's enforcement tools include intercepting California state tax refunds, issuing an Order to Withhold against your bank account, 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 your real property — all without a court judgment.
Common FTB Issues in San Francisco
California Residency Audits of Departing Tech Executives and Startup Founders
The FTB audits high-income taxpayers who left California for Texas, Nevada, or other no-income-tax states more frequently than almost any other category of taxpayer.
California taxes residents at rates up to 13.3%, and the financial incentive to establish domicile in a lower-tax state is significant at the income levels common in the Bay Area. The FTB knows this. The residency audit process, governed by FTB Publication 1031, looks at a long list of "closest connections" factors: where your family lives, where you keep your primary home, where you bank, where your doctors and attorneys are, where you go to church or synagogue, where your car is registered, and — critically — where you actually spend your time. Calendars, cell phone records, travel records, and credit card statements all come into the audit.
The standard California residency rule is simple: California residents owe California income tax on all income. The audit question is whether you were actually a California resident during the disputed period, or whether you genuinely established domicile elsewhere. Moving to Nevada or Texas and maintaining a California address, California club memberships, and California family connections while spending 200 days a year in California does not make you a Nevada resident for California tax purposes.
Stock Options and RSU Taxation
California taxes equity compensation based on where work was performed during the vesting period, not where you live when you sell or receive the shares.
This is probably the most common source of FTB disputes I see for Bay Area clients who have relocated. If you worked at a San Francisco company for three years while your RSUs vested and then moved to Texas, California claims the portion of the RSU income attributable to the California work period. The calculation uses a day-count ratio: California workdays during the vesting period divided by total workdays during the vesting period. The employer's W-2 may not reflect this correctly, which is one reason FTB audit adjustments in this area are common.
For nonqualified stock options (NSOs), the income is recognized when you exercise, and the same California-source rules apply. For incentive stock options (ISOs), there's an additional layer because of the California AMT, which does not conform to the federal ISO rules in all respects.
Pass-Through Entity Tax (AB 150) for Bay Area Partnerships and S-Corps
California's AB 150 pass-through entity (PTE) tax election allows eligible partnerships and S-corporations to pay California income tax at the entity level and get a federal deduction for it, effectively working around the $10,000 federal SALT deduction cap.
The election is made by the entity, not the individual partners or shareholders. The mechanics matter: the entity pays 9.3% California income tax on qualified net income, and each partner or shareholder receives a California tax credit equal to their share of the PTE tax paid. Getting the credit timing right — the entity must pay by June 15 of the taxable year to get the full credit — is one of the more common areas where Bay Area business owners run into FTB trouble. I see cases where the election was made but the payment timing was wrong, resulting in the credit being partially or fully disallowed.
FTB Audits After IRS Audit Adjustments
If your federal return was audited and the IRS made adjustments, you have an obligation under Cal. R&TC § 18622 to notify the FTB within six months of the final federal determination. Many Bay Area taxpayers don't know this rule exists. If you don't report the federal change, the FTB's statute of limitations on that adjustment never runs — it can go back as far as it needs to. I handle a number of cases each year where a federal audit from four or five years ago results in an FTB notice because no one filed the required California report of federal changes.
FTB Audit Defense
An FTB audit begins with a written notice — typically an examination letter identifying the issues and requesting documentation.
For correspondence audits, the FTB mails requests for specific records and you respond by mail or fax. For field audits (more common in larger dollar cases or residency disputes), an FTB auditor is assigned and may request an in-person interview and access to your records. In residency audits particularly, the FTB's document requests are broad — they want to see everything that shows where you were and what your connections to California were.
If the audit goes against you, the FTB issues a Notice of Proposed Assessment (FTB 4107). You have 60 days from the date of the NPA to file a protest. The protest is a written legal response to the FTB's proposed adjustments — it's the right time to make your full legal and factual argument. After the FTB considers your protest, it issues a Notice of Action. If you're still not satisfied, you can appeal to the Office of Tax Appeals (OTA) in Sacramento, which is the independent administrative appeals body for California tax disputes. From OTA, further appeal goes to California Superior Court.
The 60-day protest window is not a deadline to miss. If you don't protest, the NPA becomes a final assessment.
FTB Collections Defense
Once an FTB assessment is final, the FTB has the full range of California collection tools available to it — and the 20-year collection statute under Cal. R&TC § 19255 gives it time to use them.
A Notice of State Tax Lien is the FTB's first formal collection step. It's a public record that attaches to your real property in California and can affect your ability to sell or refinance. The lien filing does not require a court order.
If the lien doesn't produce payment, the FTB can escalate to an Order to Withhold against your bank accounts or an Earnings Withholding Order to your employer. The bank levy takes the funds on deposit up to the amount owed; the wage garnishment takes a portion of each paycheck. Both can be released if you enter into an installment agreement or demonstrate that you can't pay.
There are several ways to resolve an FTB collection matter. An installment agreement lets you pay over time. If you genuinely can't pay anything right now, the FTB has a currently not collectible status similar to the IRS's. California also has its own Offer in Compromise program under Cal. R&TC § 19443 — you submit a financial disclosure and a lump-sum offer, and the FTB evaluates whether it can realistically collect more than your offer amount. The FTB's OIC program is less well-known than the IRS version but it is a real option for taxpayers with significant FTB balances and limited assets.
California Residency and Source Income Issues
Even after you leave California, the FTB may still have a claim on income earned from California sources.
This is the part of California tax law that surprises most people who move away. Equity compensation traced to California workdays, deferred compensation earned while you were a California resident, K-1 income from a California partnership or S-corp, and income from the sale of California real property are all California-source items that remain taxable to nonresidents. The FTB's rules on source income are generally in Cal. R&TC § 17951 and the related regulations.
For departing Bay Area tech workers, the most common post-departure issues are: equity compensation that vested while you worked in California (see RSU discussion above), deferred compensation plans that were funded during California residency, and continuing income from California-based pass-through entities. Each of these requires separate analysis under California's sourcing rules, and the calculations can be complicated when you have multiple years with mixed residency.
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 all levels of federal and state tax controversy — including FTB matters throughout California.
My practice is built around tax controversy: IRS audits, FTB audits, EDD matters, CDTFA matters, and criminal tax defense. I work with individuals, business owners, and executives, and I handle FTB cases from San Diego to San Francisco to Sacramento. Distance isn't a barrier for FTB matters — the process is almost entirely written, and I appear before the OTA and handle FTB protests for clients anywhere in California.
If you have an FTB notice, a residency dispute, or an equity compensation question, I'm happy to discuss it. Book a free 15-minute call and let's figure out where you actually 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 two agencies share information under a formal agreement, so an IRS audit finding often triggers an FTB audit. FTB auditors issue a Notice of Proposed Assessment; 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) in Sacramento if unresolved. Procedurally they're parallel systems, but the substantive rules are different and the California-specific issues — residency, source income, equity compensation — require separate analysis.
How long does the FTB have to audit me?
The standard FTB limitations period is four years from the later of the return due date or the filing date, under Cal. R&TC § 19057. If you substantially understated income — more than 25% — the FTB gets six years. No limit applies if you never filed or filed a fraudulent return. One important exception: if the IRS makes a federal adjustment and you don't report it to the FTB under Cal. R&TC § 18622, the limitations period on that adjustment never runs.
Can the FTB garnish my wages or levy my bank account?
Yes. The FTB issues an Earnings Withholding Order to employers and an Order to Withhold to financial institutions, both without a court judgment. It can also intercept California tax refunds, suspend your driver's license and professional licenses, and record a Notice of State Tax Lien against your California real property. The FTB collection statute is 20 years under Cal. R&TC § 19255 — significantly longer than the IRS's 10-year window.
Does California have an Offer in Compromise program?
Yes, under Cal. R&TC § 19443. The California OIC program works similarly to the IRS version: you submit a financial disclosure showing your assets and income, and the FTB evaluates whether settling for less than you owe makes more sense than continued collection. Unlike the IRS, the FTB does not require a 20% non-refundable deposit when you submit the offer. It's a real resolution option for taxpayers with large FTB balances and limited ability to pay — not common, but not rare either.