California Residency Tax Planning
California’s Franchise Tax Board (FTB) sends out 4600 Notices “Request for Tax Return” when it gets a tax “information return” with a California address on it, but the taxpayer doesn’t file a California return, either as a resident (a Form 540) or as a nonresident (a Form 540NR). An “information return” are documents like a 1098, 1099, K-1 or W2. There are other reasons, but this is a major one.
To give a common example, if a nonresident owns a vacation home in California with a mortgage, and he told the lender to send the Form 1098 mortgage interest form to his vacation home address, he has likely just earned a 4600 Notice. That’s because the FTB will see a 1098 with a local address associated with a person who hasn’t filed a California tax return.
This is a common mistake. It also happens with Form 1099-INT involving bank interest from a local bank account (often involving de minimis amounts), or payments from brokerage accounts or out-of-state pensions. The lesson is, nonresidents should never use a California address (whether it’s a vacation home or a relative’s place) for any tax information document.
The 4600 Notice is not a friendly request. It can be a prelude to a residency audit, and needs to be responded to carefully. Basically, the FTB wants information about a nonresident’s global income, for obvious audit reasons.
Most 4600 Notices are sent out shortly after the annual April deadline for filing income tax returns, for the reasons stated above. However, a second round of notices tends to go out in late October. October 15, of course, is the due date for returns put on extension, but the FTB isn’t relying on that. A nonresident who doesn’t plan to file a California tax return wouldn’t ask for an extension.
Happy Halloween. It’s that time of year again.
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Manes Law is the premier law firm in California residency tax planning, consultations, audits and appeals. We have over two decades of success assisting Californians who want to change their legal residency, businesses moving their situs to other states, and nonresidents purchasing vacation homes or investment property in California. Learn more at our website: www.calresidencytaxattorney.com.