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California Franchise Tax Board or FTB Audit Subject of US Supreme Court Case

The US Supreme Court has agreed to review the decision of the Nevada Supreme Court in a case that involves the Californai Franchise Tax Board or FTB audit practices.  The core issues of the FTB audit in question were the relocation of a taxpayer, and the requirements for legally establishing “residency” based (in part) by the timeframe of establishing a domicile.

In the case in question, the California FTB auditors asserted that an inventor attempted to avoid paying California income taxes by moving to Nevada, and had failed to establish a domicile during the year in question.  As a result the FTB auditors issued a deficiency notice of $1.8 Million plus $2.6 Million in penalties and interest for the back taxes. Nevada’s courts found the California FTB could be held accountable for fraud and emotional distress, and ultimately a $500 Million jury verdict was handed to the inventor.

This amount was subsequently reduced by the Nevada Supreme Court, but not in whole.

The questions the US Supreme Court will review are a bit technical, but the questions relate to whether a state court must provide the same immunities to an out-of-state agency that a like agency would receive in their own state, and whether out-of-state agencies can be sued without notice.

The US Supreme Court has already addressed the latter issue [(Nevada v. Hall, 440 U.S. 410) (1979)], but the FTB is asking them to overturn this ruling.

If you intend to move out of California to avoid heavy taxation, there are crucial standards that must be met in order to legally change your domicile and residency.  The FTB agressively pursues these cases, and it is important to understand all of the associated implications of real estate, vehicle and personal property ownership as well as time spent in each state and other factors.

We invite you to contact us for a free and substantive consultation at 866-631-3470 if you have questions about re-establishing an out-of-state residency or other issues with California taxation.