When the California Franchise Tax Board (FTB) proposes additional tax, a taxpayer who disagrees has several ways to respond. The main path is a protest to the FTB, followed if necessary by an appeal to the independent Office of Tax Appeals (OTA). The deadlines are short and differ from federal deadlines. This article outlines the process.
The Notice of Proposed Assessment
After an audit or review, the FTB may issue a Notice of Proposed Assessment (NPA) stating the additional tax, penalties, and interest it proposes. According to the FTB, a taxpayer who disagrees may file a protest within 60 days from the date of the NPA. If no protest is filed, the NPA becomes final after 60 days.
Filing a Protest
A protest asks the FTB to reconsider the proposed assessment. An effective protest identifies each adjustment in dispute, explains the facts and the legal basis for the taxpayer’s position, and includes supporting documentation, such as bank records, invoices, contracts, logs, and third-party statements.
If the FTB affirms the assessment after considering the protest, it issues a Notice of Action (NOA).
Interest continues to accrue while a dispute is pending. The FTB notes that a taxpayer may make a tax deposit to stop the accrual of interest on the amount in dispute.
Appealing to the Office of Tax Appeals
A taxpayer who disagrees with the NOA may appeal to the OTA within 30 days from the date of the NOA. The OTA was created by the Taxpayer Transparency and Fairness Act of 2017 and describes itself as an independent and impartial appeals body, separate from the state’s tax agencies. Appeals are decided by a panel of tax experts, hearings are held in Sacramento, Fresno, and Los Angeles, and taxpayers may represent themselves or be represented.
Appeals are filed through the OTA’s online portal or by mail or fax, using the OTA’s Request for Appeal form along with a copy of the notice being appealed and supporting documents.
The Pay-and-Refund Path
Instead of protesting, or after an assessment becomes final, a taxpayer may pay the balance in full and file a claim for refund with the FTB. If the FTB denies the claim, the taxpayer may appeal to the OTA within 90 days from the date of the NOA denying the claim. A taxpayer whose refund claim is denied may also file suit in California Superior Court within the time limits the FTB describes, which include 90 days from the date of the notice disallowing the claim.
Penalty Relief
Penalties can be addressed in a protest or appeal, and the FTB also has separate relief procedures. The FTB may waive penalties when a taxpayer shows reasonable cause, and it offers a one-time penalty abatement that can cancel certain timeliness penalties for eligible taxpayers.
Help for Smaller Disputes
The FTB’s Tax Appeals Assistance Program connects eligible taxpayers with law students who, under attorney supervision, assist with appeals before the OTA. The program prioritizes low-income or under-resourced taxpayers, and the amount in dispute must be less than $30,000.
Practical Considerations
Deadlines. The 60-day protest period and the 30-day OTA appeal period run from the dates on the notices. Calendar them as soon as a notice arrives.
Good standing. The FTB states that a suspended business entity cannot start or continue a protest or file or maintain an appeal before the OTA, so an entity’s status should be confirmed early.
Federal connection. Many California adjustments follow federal changes. The FTB requires taxpayers to report federal adjustments within six months, and the timing of that report affects how long the FTB has to assess additional tax.
Records. The outcome often depends on documentation. Organizing records before the protest is filed makes each later stage easier.
Received a Notice of Proposed Assessment?
Tax attorney Cassra Minai, Esq. can review the FTB’s notice and your protest and appeal options in a confidential consultation.