How to Handle an FTB Residency Audit and Protect Your Move Out of California

Leaving California can mean significant tax savings, but the Franchise Tax Board (FTB) doesn’t let go of taxpayers easily. If you move out of state and suddenly report less California income, you may attract an FTB residency audit — a detailed investigation into whether you’ve truly changed your tax residency.

For high-net-worth individuals, doctors, dentists, entrepreneurs, and business owners, a residency audit can mean hundreds of thousands (or even millions) in taxes at stake. That’s why preparation and proper planning are critical.

What Is an FTB Residency Audit?

An FTB residency audit is California’s way of confirming whether you are still a California resident for tax purposes. Even if you believe you’ve left, the FTB looks at your lifestyle, connections, and financial ties to determine if you should continue paying California income tax.

Residency audits often start when:

• You file a part-year resident return and report large income after your move.
• Media reports highlight big financial events (like court settlements or stock sales).
• Your W-2s or 1099s list California as the source but you exclude it on your return.
• An informant — such as an ex-spouse or former employee — provides details.

How the FTB Decides Residency

The FTB uses a facts-and-circumstances test to see if California is still your “closest connection.” They’ll compare:

• Days spent in California vs. your new state (time in other states doesn’t count).
• Whether you kept a California home.
• Where your family lives.
• Where your business, bank accounts, and investments are located.
• Where your driver’s license and voter registration are held.
• Even your doctor, dentist, or country club memberships.

👉 In short, if you look like you still live here — even partially — the FTB may rule you a resident.

What Happens in a Residency Audit?

An FTB audit is not a simple letter. Expect:

• Detailed questionnaires about your move, living arrangements, and finances.
• Requests for bank and credit card statements to track your location.
• Review of utility bills, property tax payments, and employment records.
• In some cases, interviews or site visits.

The process can last months or even years, and the burden of proof is on you — the taxpayer.

How to Prepare Before (and After) a Move

If you’re planning a move out of California, advance preparation is your best defense. Consider these steps:

• Document your move date clearly — Keep records like moving company contracts, new lease agreements, or home purchase documents.
• Change all registrations — Driver’s license, voter registration, mailing address, insurance, and professional licenses.
• Establish new state ties quickly — Buy a home, move your belongings, open bank accounts, and join local organizations.
• Sever California ties — Sell your California home if possible. If you keep it, avoid personal use and long visits.
• Track your days — Keep a calendar proving where you spent time each month.

Why Keeping Your California Home Is Risky

Many clients resist selling their California residence. Some plan to lease it, others want to keep it for “just in case.” Unfortunately, the FTB views retaining a California property as a strong tie to the state.

Even if rented, problems arise if:

• You or family members use it occasionally.
• Lease terms are short or inconsistent.
• Records suggest you still “control” the property.

💡 Bottom line: Selling is the cleanest way to prove your intent to leave. If you can’t, strict documentation and zero personal use are critical.

The Cost of Getting It Wrong

Even if you eventually win the audit, the cost of legal fees, accounting support, and stress can outweigh the tax savings. And if you lose, you may owe:

• Back taxes on out-of-state income
• Interest and penalties
• Possible exposure to multiple years of returns

This is why proactive planning is far more effective than trying to defend yourself after the audit begins.

How Velin & Associates, Inc. Helps

At Velin & Associates, Inc., we specialize in helping high-net-worth individuals, doctors, dentists, business owners, and entrepreneurs navigate California’s complex tax residency rules.

Our services include:

• Pre-move residency planning — Structuring your move to reduce audit risk.
• Documentation guidance — Ensuring every key detail (from driver’s license to bank records) supports your residency change.
• Audit defense — Representing you if the FTB challenges your return.
• Tax strategy alignment — Coordinating your residency plan with broader wealth management goals.

With decades of experience, we know how the FTB thinks — and how to protect your financial future.

Final Takeaway

If you’re planning a move out of California, don’t wait until the FTB comes knocking. Residency audits are complex, costly, and invasive — but with careful planning, you can protect yourself and your wealth.

For more information about our tax planning services, contact us today: visit our website.

Velin & Associates, Inc

8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org