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Top Five California Franchise Tax Board (FTB) Audit Programs

This article is reproduced with permission from Spidell Publishing, Inc.

The FTB has an active audit program. The top five issues are as follows:

  1. Capital gains and losses: Audits check whether gains and losses were reported correctly for a variety of audit issues, including sale of stock, business property, casualty losses, and amounts flowing through from passthrough entities.
  2. Like-kind exchanges: Issues include erroneous boot calculations, improper property identifications, and failure to meet other deferral requirements.
  3. Head of household filing status: Common errors include the qualifying individual’s income exceeding the gross income test and taxpayers who do not meet the requirements to be considered married or considered not a registered domestic partner (RDP).
  4. Employee business expenses: The FTB may ask taxpayers claiming unreimbursed employee business expenses to provide documentation to substantiate their employer’s reimbursement policy to determine whether their expense is allowable.
  5. Shareholder/partner/owner’s basis in a passthrough entity: Audits check the correct reporting of flow-through items and amounts reported on the sales of interests in passthrough entities.

There are a number of other programs, including residency. There are also other issues on which the tax-payers have been receiving correspondence/audit notices, such as other state tax credits, apportionment, and enterprise zone tax credits, to name a few.

For more information about this article, please contact our tax professionals at or toll free at 844.4WINDES (844.494.6337).
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