Articles Tagged with FTB Surveillance

INC-WBWU-3-yellow-scaledThe Issue

​If you’re in the habit of reviewing California residency cases (and only a tax attorney specializing in the field or a masochist would be), you will occasionally come upon a reference to the Franchise Tax Board’s “Integrated Nonfiler Compliance” system, sometimes called the INC program. The court opinion will mention that the audit was initiated under INC and move on from there. This article discusses how this somewhat secretive program works, and how it affects a nonresident’s risk of a California residency audit.

Good News, Bad News

The good news is that nonresidents are often in control of the actions required to minimize that risk. The bad news is it usually takes a concerted, systematic effort to avoid the INC system. A single mistake can earn you a residency audit.

Which Nonresidents Does INC Target?

The INC system only targets a certain subset of nonresidents. Specifically, as the somewhat sinister name indicates, it focuses on nonfilers. For nonresidents who in fact file a nonresident California tax return (Form 540NR), the FTB doesn’t need INC to decide whether to audit for residency or not. That’s because a 540NR delivers most of the relevant information to the FTB on a silver platter. The 540NR requires a nonresident to disclose the number of days spent in California during the tax year, ownership of California residential property (directly or indirectly through an entity or trust), and perhaps most importantly the nonresident’s global income. That’s usually more than enough material for the FTB to decide whether to pursue a residency audit, or at least to provide grounds for investigating the taxpayer further by reviewing available databases (including Google and Zillow) before deciding to go forward.

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