California FTB Notice of Proposed Assessment Explained

The California Franchise Tax Board is responsible for administering the state’s personal and business income tax programs, ensuring that taxpayers comply with filing and payment requirements. Its role includes reviewing California tax returns, processing payments, and identifying potential differences between reported income and official records. When discrepancies are identified, the agency issues a California FTB Notice of Proposed Assessment to notify taxpayers that the Franchise Tax Board believes additional tax may be due.

Receiving a Notice of Proposed Assessment may cause uncertainty, but it also offers an opportunity to review your filing and confirm information before the balance becomes final. The notice lists essential details, such as the proposed additional tax, the tax year in question, and the response due date. It also informs taxpayers of their right to request a review, file a protest, or submit additional information to resolve the issue. The Franchise Tax Board explains that this process ensures fairness by allowing taxpayers to respond before an assessment is finalized.

Understanding the Franchise Tax Board’s responsibilities and how proposed assessments work helps taxpayers, businesses, and representatives accurately manage their obligations. Knowing when to act protects you from unnecessary interest, penalties, and collection actions while keeping your California tax record accurate and up to date.

What the Notice of Proposed Assessment Means for You:

A Notice of Proposed Assessment is an official statement from the California Franchise Tax Board that details potential differences in your state tax filing. It informs taxpayers and businesses that the agency has identified possible changes or additions to their tax liability after reviewing submitted returns, information returns, and payment records. The document provides transparency by outlining how the proposed assessment was calculated and what actions are available to resolve it before it becomes final.

1. Proposed Assessment: This refers to the amount of additional tax the Franchise Tax Board believes may be owed after comparing your California tax return to data received from the Internal Revenue Service and other reporting sources. It is not a final bill but a notice of intent that allows the taxpayer to respond. The notice often arises when income, deductions, or credits reported on the tax return differ from verified records or when estimated tax payments were missing or misapplied. 
   
   
2. Audit Results: An audit result may also trigger a proposed assessment. The Franchise Tax Board conducts reviews of income and business filings to confirm reported figures. Suppose discrepancies are found in financial data or business deductions. In that case, the agency issues a notice explaining the findings and provides an opportunity for the taxpayer to verify the documentation or dispute the outcome.
   
   
3. Tax Liability: This represents the total amount of state income tax due for the year under review, including any additional tax proposed by the agency. When the notice is issued, the liability is still under evaluation, allowing taxpayers to provide supporting evidence, file an amended California tax return, or request consideration from a hearing officer through the tax appeals process.
   
   
4. Interest Accrues: Interest accrues on unpaid amounts starting from the original due date of the return until the balance is resolved. Paying early or submitting a tax deposit can help limit future interest. This process ensures accountability for both taxpayers and the state while maintaining an equitable approach to tax administration. 

Understanding the proposed assessment provides clarity and direction for the next steps. Responding within the timeframe protects your rights and helps prevent unnecessary additional interest or collection actions. The goal is to enable taxpayers to verify, clarify, and resolve their filings efficiently while remaining compliant with California income tax laws.

Common Reasons You Might Receive a Notice

The California Franchise Tax Board issues a Notice of Proposed Assessment when it identifies differences or missing information in a taxpayer’s filing. These differences may be evident in income reports, payment records, or business deductions. Identifying the cause enables individuals and businesses to correct filing errors promptly and reduce additional tax or interest accrual.

• Unpaid Balances: Taxpayers who filed their California tax return but did not pay the full balance may receive a proposed assessment. The notice lists the amount of additional tax owed, as well as any interest that has accrued since the original due date. Partial payments or delayed processing can also trigger an updated balance notice.
  
  
• Unfiled or Late Tax Returns: The Franchise Tax Board may prepare a substitute return using information from employers, banks, or the Internal Revenue Service. These substitute filings often show higher income and fewer deductions because personal exemptions and credits are not included. Filing your own complete return typically results in a more accurate tax liability and prevents enforcement actions.
  
  
• Mismatched Income or Reporting Errors: The FTB cross-checks data from the Internal Revenue Service, employers, and financial institutions to confirm reported income. When totals differ between sources, the system automatically generates an alert. Taxpayers are then sent a proposed assessment to address the discrepancy and provide supporting documentation.
  
  
• Audit Adjustments: If an FTB or IRS audit identifies underreported income, incorrect deductions, or missing documentation, the agency issues a notice outlining the results. The notice includes details about how the difference was calculated and invites the taxpayer to provide records or explanations. Each audit is case-specific, focusing on factual evidence from the taxpayer’s filings and records.
  
  
• Disaster Loss or Credit Corrections: Taxpayers claiming disaster losses or business credits without complete documentation often receive revised calculations. The FTB may adjust the claim amount based on eligibility or verified proof of income. A proposed assessment allows taxpayers to submit additional records to support their claims before any adjustment becomes final.

Each proposed assessment represents an opportunity to review your records and correct any errors in your reporting. Reviewing the notice carefully and responding within the deadline keeps your California tax record accurate. Staying proactive reduces interest accrual, prevents unnecessary collection activity, and facilitates efficient resolution of your state income tax matters.

Taxpayers Impacted by the Notice

The California Franchise Tax Board issues a Notice of Proposed Assessment to various taxpayers each year. Every category of filer may experience unique reasons for receiving a notice, including missing estimated payments, record inconsistencies, or changes identified during an audit. Recognizing which group you fall into helps determine what information the Franchise Tax Board may request and what response options are available to you.

Individuals and Families

Many individuals receive a notice after a discrepancy is found between their reported income and the data provided by employers or financial institutions. Wage reporting errors, self-employment income, or unfiled information returns often cause the difference. Some families face adjustments due to late submissions or unclaimed credits that affect their personal California tax return.

Small Businesses and Limited Liability Companies

Small businesses and LLCs receive notices when reported income or deductible expenses differ from verified records, leading to recalculated tax liability. The Franchise Tax Board may identify inconsistencies in payroll, vendor payments, or expense claims that lead to additional tax assessments. Business owners managing multiple accounts or lacking organized documentation may encounter challenges reconciling these figures.

Employers and Contractors

Employers and independent contractors may receive proposed assessments for unreported wages, unpaid withholding tax, or mismatched data from the Internal Revenue Service. Errors in wage reporting systems or late filings of information returns can result in a recalculated balance. Regular verification of payroll and 1099 forms supports compliance and reduces the risk of further tax assessments.

High-Income Taxpayers and Complex Filings

Taxpayers with multiple income sources or investments are subject to closer scrutiny. Stock sales, real estate transactions, and partnership distributions may produce discrepancies if documentation is incomplete or filed late. The Franchise Tax Board also examines whether estimated tax payments were accurate throughout the year to prevent underpayment issues.

Receiving a Notice of Proposed Assessment signals that your filing requires clarification. Responding promptly with accurate records ensures that any additional tax or balance adjustments are handled fairly and equitably. Understanding your category of impact allows you to address the notice efficiently and maintain compliance with California income tax obligations.

What Happens If You Ignore the Notice

Failing to respond to a California Franchise Tax Board notice can result in significant financial obligations. The amount becomes final if no response is received within 60 days of the date of issuance.  Once finalized, the assessment turns into an enforceable debt, creating long-term obligations for taxpayers and businesses.

When the proposed assessment becomes final, the taxpayer loses the right to protest or appeal the decision. The balance becomes due immediately, including any additional tax and accrued interest. The agency initiates collection procedures after the due date has passed, which may include wage garnishment, bank levies, or property liens.

Possible Consequences

• Interest and Additional Tax: Interest accrues from the original due date until full payment is made.
  
  
• Wage Garnishment: The FTB may issue an Earnings Withholding Order, allowing employers to withhold a portion of wages to satisfy the balance.
  
  
• Bank Levy: The agency can seize available funds in checking or savings accounts once the tax becomes final and enforceable.
  
  
• Property Liens: A lien may be recorded against real estate or other assets, restricting financial transactions until the balance is settled.
  
  
• License Suspension: In some instances, the state may suspend a professional's or driver’s license for substantial unpaid liabilities.

Failure to respond to a proposed assessment significantly limits available resolution options. Addressing the notice promptly allows taxpayers to request a payment plan, dispute errors, or reduce the amount owed through proper documentation. Taking timely action ensures fair review, protects assets, and minimizes future enforcement efforts from the Franchise Tax Board.

How to Respond to a California FTB Notice of Proposed Assessment

Responding promptly to a California Franchise Tax Board Notice of Proposed Assessment ensures that your rights remain protected and that potential disputes are resolved efficiently. Each step in the response process allows taxpayers to verify their filings, confirm their income, and clarify discrepancies before the proposed amount becomes final. The following step-by-step guide outlines how to respond effectively and maintain compliance with state tax requirements.

Step 1: Review the Notice Carefully

Examine every section of the notice, including the tax year, the proposed additional tax, and the total balance. Identify the due date for your response and note any missing or incorrect information. Keeping accurate records at this stage helps guide later communication with the Franchise Tax Board.

Step 2: Compare Your Tax Records

Gather your California tax return, supporting forms, and wage statements. Compare these documents with the data used to prepare the proposed assessment and confirm that all reported income and estimated tax payments align.

Step 3: Order IRS Tax Transcripts

Discrepancies between federal and state filings are a frequent cause of proposed assessments. Request your records from the IRS Get Transcript tool to verify federal income reporting. Comparing this information ensures that the FTB and IRS data align before you respond.

Step 4: Gather Supporting Documentation

Collect documents such as W-2s, 1099s, bank statements, or proof of payments. Include receipts for deductible expenses and records that confirm reported income. Organized records enable the FTB to process your response efficiently and minimize the need for additional correspondence.

Step 5: Decide on Your Response Type

If you agree with the proposed additional tax, you can pay the balance or request a payment plan. If you disagree, file a written protest explaining your position, and include supporting documentation. The Franchise Tax Board reviews each submission to determine whether adjustments are warranted.

Step 6: Submit Your Response Before the Deadline

Submit your payment, protest, or clarification by the date specified on the notice. Late submissions may result in the automatic finalization of the proposed assessment and the accrual of additional interest. Retain copies of all materials for your records.

Timely responses demonstrate cooperation and protect your right to dispute or correct the proposed tax amount. Working directly with the Franchise Tax Board ensures that your filing is reviewed fairly and that any errors are resolved before the balance becomes enforceable.

Payment, Settlement, and Relief Options

The California Franchise Tax Board offers several programs to help taxpayers manage outstanding liabilities from a Notice of Proposed Assessment. These options are designed to support individuals and businesses facing financial hardship or temporary cash flow limitations. Each option focuses on practical ways to resolve tax debt, reduce additional interest, and maintain compliance with California income tax laws.

• Payment Plan: A payment plan, also referred to as an installment agreement, enables taxpayers to pay their balance over a specified period. Eligible taxpayers must be current on all required filings and demonstrate the ability to make regular monthly payments. The FTB typically approves plans ranging from short-term arrangements to multi-year payment schedules.
  
  
• Tax Deposit: A tax deposit temporarily holds funds toward an assessment under protest or review. Making a deposit prevents additional interest from accruing on the disputed amount while allowing taxpayers to maintain their right to appeal. Deposits can be made electronically or through the Franchise Tax Board’s online payment portal.
  
  
• Settlement Program: The settlement program helps resolve disputed liabilities for less than the total amount owed when financial hardship is proven. The FTB evaluates each application based on available income, expenses, and assets. Taxpayers who cannot pay their full balance may qualify for a reasonable settlement that reflects their financial capacity.
  
  
• Penalty Abatement: Taxpayers who failed to file or pay on time due to reasonable cause, such as illness or loss of records, may request penalty abatement. The FTB reviews the circumstances and documentation to determine eligibility. Approved abatement requests can significantly reduce additional charges linked to a proposed assessment.
  
  
• Temporary Financial Hardship Relief: When immediate payment would cause severe financial strain, taxpayers may request temporary relief status. This status postpones collection actions until their economic situation improves. It does not remove the liability but provides time to stabilize and plan for resolution.

The appropriate relief option varies based on your financial condition and the accuracy of the proposed assessment. Prompt communication with the Franchise Tax Board ensures that all available relief options are reviewed thoroughly. Addressing your balance proactively helps prevent enforced collections and supports long-term financial stability.

Filing a Protest or Appeal with the FTB

Submitting a formal protest or appeal allows taxpayers to dispute a California Franchise Tax Board Notice of Proposed Assessment before it becomes final. The process ensures that each case is reviewed fairly and that taxpayers have the opportunity to present supporting evidence. Timely submission of the required documents preserves your right to challenge the proposed additional tax and request reconsideration.

1. Review the Notice and Determine Grounds for Disagreement

Identify the specific items in dispute, such as unreported income, incorrect deductions, or misapplied payments. Confirm the tax year and the proposed additional tax amount to ensure your protest addresses the correct issues.

2. Prepare a Written Protest

A written protest must include your name, contact information, the tax year involved, and a clear explanation of why you disagree with the proposed assessment. Attach any supporting documentation, such as receipts, tax forms, or correspondence that supports your claim.

3. Submit the Protest Before the Deadline

File your protest within 60 days of the date shown on your notice. Submissions received after this period result in automatic finalization of the proposed assessment. You can mail your protest or use the Franchise Tax Board’s online system to ensure timely delivery.

4. FTB Review and Communication

A hearing officer reviews the protest, evaluates the evidence, and issues a written response outlining the decision. Additional information may be requested during the review process.

5. Appeal to the Office of Tax Appeals

If you disagree with the outcome, you may appeal to the independent Office of Tax Appeals. The appeal must be filed within the statute period listed in the FTB’s final notice.

Submitting a complete and timely protest demonstrates diligence and preserves your legal rights. Proper documentation and clear communication help ensure that your case receives a fair evaluation from the Franchise Tax Board.  

Example: How a Taxpayer Resolved a Proposed Assessment

Resolving a California Franchise Tax Board Notice of Proposed Assessment often requires a clear plan and well-documented records. The following example outlines how one taxpayer successfully addressed a proposed assessment and achieved a fair resolution through timely communication and evidence-based responses.

• Background Situation: A freelance graphic designer in California received a Notice of Proposed Assessment for unreported self-employment income. The Franchise Tax Board calculated additional tax and interest after comparing information returns from clients with the taxpayer’s original California tax return.
  
  
• Identifying the Issue: The taxpayer reviewed the notice and discovered that multiple 1099 forms had been mailed to an outdated address. These missing forms caused the discrepancy in reported income and led to the proposed additional tax.
  
  
• Gathering Documentation: The taxpayer collected all income records, bank statements, receipts, and proof of deductible expenses. They also confirmed that their estimated tax payments were applied correctly to the correct tax period.
  
  
• Filing an Amended Return and Protest: The taxpayer submitted an amended California tax return to include the omitted income and applicable deductions. A written protest was filed explaining the oversight and attaching supporting financial documentation.
  
  
• FTB Review and Adjustment: The hearing officer reviewed the materials, verified the reported information, and recalculated the assessment. The revised balance reflected accurate income, allowable deductions, and corrected interest calculations.
  
  
• Resolution and Payment: The taxpayer agreed to the adjusted amount and established a short-term payment plan. The account was marked resolved after the balance was paid in full.

This example illustrates how thorough documentation, timely responses, and well-organized records contribute to fair resolution outcomes. Responding quickly to the Franchise Tax Board ensures that taxpayers can correct errors, reduce unnecessary interest, and maintain compliance with California income tax requirements.

Frequently Asked Questions: California FTB Notice of Proposed Assessment

What is a California FTB Notice of Proposed Assessment?

A California FTB Notice of Proposed Assessment is an official document issued when the Franchise Tax Board identifies differences in a taxpayer’s California tax return. It outlines the proposed assessment, which may include additional tax, interest, or adjustments based on audit results or missing information returns. Taxpayers affected must review the notice, verify their income, and respond before the specified date to prevent the proposed assessment from becoming final.

Why did I receive a Notice of Proposed Assessment?     

Taxpayers may receive a Notice of Proposed Assessment due to unreported income, errors on their tax return, or discrepancies between state and Internal Revenue Service data. Limited liability companies, individuals, and businesses can also be subject to audit findings or missing estimated tax payments. The Franchise Tax Board issues the notice to allow taxpayers to clarify or dispute the proposed assessment before additional interest and costs accrue.

How long do I have to respond to the notice?

You typically have 60 days from the date shown on the notice to respond, pay, or file a written protest. Missing the due date means the proposed assessment automatically becomes final, increasing your tax liability and the amount of interest that accrues. Submitting accurate records and tax forms on time ensures your right to dispute or resolve the notice remains fully protected under Franchise Tax Board procedures.

What happens if I ignore a proposed assessment?

If you ignore the proposed assessment, it becomes final after the 60-day period expires, and the Franchise Tax Board may begin enforced collection. Interest continues to accrue from the original due date of your California tax return until full payment is made. Failing to respond to the notice can result in wage garnishment, property liens, or additional collection actions, which can significantly increase your overall balance and the cost of resolution.

How can a taxpayer dispute a Notice of Proposed Assessment?

Yes, you may dispute a Notice of Proposed Assessment by filing a written protest with supporting documentation. The protest must clearly explain your disagreement and include relevant documents or records to support your claim. A hearing officer from the Franchise Tax Board will review your protest and issue a written decision. If you disagree with the result, you may request an appeal through the California Office of Tax Appeals for further consideration.

What options do I have if I am unable to pay the balance?

Taxpayers who cannot pay the full amount can apply for a payment plan, settlement program, or other tax relief options offered by the Franchise Tax Board. Making a tax deposit while awaiting review can limit the amount of additional interest that accrues on your balance. The FTB evaluates eligibility based on income, assets, and reasonable financial hardship to determine which repayment or settlement option best fits your circumstances.

How can I prevent receiving future proposed assessments?

To prevent future proposed assessments, ensure your California tax return includes accurate income, complete information returns, and verified deductions. File all returns and estimated tax payments before each due date to avoid discrepancies and ensure timely compliance with tax regulations. Keeping detailed records for at least four years helps taxpayers verify reported income and resolve potential audit issues quickly. Maintaining accurate filings supports compliance with Franchise Tax Board requirements and reduces the likelihood of future proposed assessments.

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