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Residency Audits

The California Franchise Tax Board (FTB) conducts residency audits to ascertain whether a taxpayer is a California resident, a non-resident, or a part-year resident, to determine the correct amount of that taxpayer’s tax obligation. The outcome of a residency audit can radically alter the amount of your tax obligation, which is why the tax specialists at the Ben-Cohen Law Firm strive to help our clients understand what is entailed in a residency audit, and then provide the highest quality representation of residency audits. Working with our firm, you will have the benefit of having both a Los Angeles residency audit attorney, certified by the State Bar of California Board of Legal Specialization as a Taxation Law Specialist, and a licensed Certified Public Accountant (CPA), working hard to achieve the most favorable outcome possible on your behalf.

Residency audits may be singularly-focused or wide-ranging

California law defines a state resident as any individual who is in the state for something other than a temporary or transitory purpose, or alternately, one who is domiciled in California, but physically outside the state for a purpose that is only temporary or transitory. California Code of Regulations (CCR) § 17014(b) defines “temporary or transitory purpose,” providing that visitors in the state for only a short period of time, whether here for business or pleasure, are in the state for “a temporary or transitory purpose,” and are not considered California residents. Those individuals staying in the state indefinitely or for the long-term are subject to state tax.

Residency audits differ from other audits in their focus and nature. In contrast with most audits, which center on specific claims made within a return, such as amounts of income, deductions, or credits, residency audits attempt to deduce the taxpayer’s state of residence. Do not be misled though – a residency audit can also focus on issues of income, deductions, or credits, in addition to residency matters. Our residency audit lawyers can advise Los Angeles clients and others on all of the matters that it may involve.

Residency audits are protracted, detail-oriented processes

During your residency audit, you may expect the auditor to request certain information and documentation tending to establish your residency status. This information might include personal records, business activity documents, and financial records. Due to the sensitivity of this information, auditors should handle such personal information in a confidential manner.

The documents an auditor may request run a significant range, and may relate to issues including real estate, personal property, business records, financial records, and personal records. The residency audit attorneys at our Los Angeles firm believe that you could reasonably expect an auditor to request: information about your purchase, sale or lease of your home, escrow documents, homeowners or renters’ insurance information, documents regarding your vehicle or watercraft, travel logs, personal calendars, your employment agreements, cancelled checks or bank statements, credit card receipts and/or statements, or even your voter registration information.

Residency audits take a long time to complete. While the FTB sets its goal at 18 months to complete a residency audit, that is generally a best-case scenario. Some residency audits can take years to complete.

Tax Cuts and Jobs Act of 2017

The Tax Cuts and Jobs Act of 2017 significantly limits the amount of state and local taxes (SALT) that may be deducted. Prior to the reform, the federal government allowed taxpayers to deduct payments made to their state and local governments for property taxes and income or sales taxes. The SALT deduction is now limited to $10,000 ($5,000 for married filing separate) per year. Therefore, residents of states with high tax rates like California may consider changing their residence to another state with lower tax rates. What they may fail to consider, however, is that the FTB has an unlimited amount of time to audit taxpayers who do not file a California income tax return.

The FTB’s audit process and residency calculation can be both very confusing and exacting with regard to certain details unless you retain a Los Angeles residency audit lawyer to advise you. California residency audits are often very complicated, and their outcomes can make huge differences in the amount of your tax obligations. For diligent, knowledgeable and personalized representation in your residency audit, contact the tax attorneys at the Ben-Cohen Law Firm.

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