Taxpayers have had very little success in recent years when appealing Franchise Tax Board (FTB) residency audit decisions. As California's Office of Tax Appeals (OTA) notes in decision after decision, "FTB's determinations of residency are presumptively correct, and the taxpayer bears the burden of showing error in those determinations."1 Once California domicile is established, a taxpayer moving out of state must provide evidence of their change in domicile if challenged by FTB.2 If the weight of evidence is unclear or contradictory, the OTA will find that domicile has not changed.3
Therefore, it is critical to establish your out-of-state residency during the audit process. This is our specialty, built on experience handling California residency cases from both the auditor's desk and the taxpayer's side.
Appeal of Q. Tran and R. Medina (2025)
Case Number: OTA Case No. 21088364
Precedential: No
Background: The taxpayers stated they had changed their domicile from California to Nevada during several tax years, indicating the husband moved there for his professional gambling career.
Outcome: Decision Against Taxpayer
Observations: A bad fact pattern can be difficult to overcome. Here, all the documentation provided to FTB during the audit showed the taxpayers consistently in California during the years at issue.
Appeal of S. Ferreira (2024)
Case Number: OTA Case No. 230814036
Precedential: No
Background: Taxpayer stated they were a Florida resident working in Florida during 2018, but filed California tax returns using a California address.
Outcome: Decision Against Taxpayer
Observations: Another difficult fact pattern for the taxpayer. There just wasn't enough documentation provided to FTB that showed Florida residency.
Appeal of Housman and Pena (2022)
Case Number: 2022-OTA-375P
Precedential: Yes
Background: Australian citizens stated they had incorrectly filed as California residents at the time they realized a substantial capital gain from the sale of their business interests.
Outcome: Decision Against Taxpayer (on residency); For Taxpayer (foreign entity basis calculation and valuation method of private equity)
Observations: Earlier planning around employment agreements could have helped make the taxpayers' case better on residency. Fortunately, OTA did take taxpayer-favorable positions regarding foreign entity basis and valuation methods in this precedential decision, which negated the tax impact of the residency finding.
Appeal of Beckwith (2022)
Case Number: 2022-OTA-332P
Precedential: Yes
Background: Taxpayer, having moved out of California in 2008, stated Tennessee residency when he sold his Tennessee-based company in 2012 but FTB was able to discover many connections to California during its audit.
Outcome: Decision Against Taxpayer
Observations: Highly unfortunate result where the taxpayer lost $1.1M plus interest to the state over a timing difference of a few months. Subjective elements were decided in the state's favor. This kind of result should be preventable. If moving to or from California close to a liquidity event, consultation is strongly recommended.
Appeal of Panda (2022)
Case Number: 2022-OTA-237
Precedential: No
Background: Wife argued that her community property share of her husband's out-of-state earnings should not be taxable by California because she changed her domicile.
Outcome: Decision Against Taxpayer
Observations: Major elements of the determination against the taxpayer focused on subjective aspects of tax domicile. Better planning could have provided better contemporaneous evidence of the taxpayer's intent.
Appeal of J. Bracamonte (2021)
Case Number: 2021-OTA-156P
Precedential: Yes
Background: Taxpayers sold their California business on July 18, 2008, but stated they had changed their residency to Nevada before the sale, resulting in no California tax on the gain.
Outcome: Decision Against Taxpayer
Observations: Another unfortunate decision against the taxpayer which could have benefitted from better contemporaneous evidence of the taxpayers' intent. Here, the taxpayers did undertake certain formalities of changing their residence, but didn't observe others, and FTB judged those other factors to outweigh the factors in the taxpayers' favor. If the taxpayers had observed ALL of the formalities - which is very possible (it's a finite list) - then FTB would have had no basis for a residency assessment.