How IRS Audits Trigger California Tax Audits
IRS Audit Adjustments? You Must Notify California’s FTB—Here’s Why
When the IRS audits your return and makes adjustments that increase your tax liability, that’s not the end of the story—especially if you live in California. State law requires you to report those changes to the Franchise Tax Board (FTB), and how quickly you act can significantly impact your exposure to additional penalties and interest.
What You’re Required to Do
If the IRS makes changes to your federal return, and you file a state return in California, you must report those changes to the FTB within six months. Failing to do so can extend the state’s audit window and increase your financial liability.
The Timeline
- Reported within 6 months: FTB has 2 years to assess based on IRS changes.
- Reported after 6 months: FTB has 4 years to assess.
- Never reported: FTB has no time limit to assess taxes, penalties, and interest.
These timelines are measured from the date your return was originally filed and the correct amount of tax should have been paid. Interest and penalties can accrue from that original filing date, even if you report the changes late.
If the IRS has made changes to your return, act quickly. Timely reporting can make the difference between a manageable tax correction and an open-ended liability.
