What is the difference between the IRS & the FTB?

On: May 31, 2019

The Internal Revenue Service (IRS) is the revenue service of the United States federal government. The government agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue, who is appointed for a five-year term by the President of the United States. The IRS is responsible for collecting taxes and administering the Internal Revenue Code, the main body of federal statutory tax law of the United States. The duties of the IRS include providing tax assistance to taxpayers and pursuing and resolving instances of erroneous or fraudulent tax filings. The IRS has also overseen various benefits programs, and enforces portions of the Affordable Care Act.^[4] The Franchise Tax Board (FTB) is the California tax agency that collects and enforces state income tax assessment and collection. In many situations, the FTB operates similarly to the Internal Revenue Service (IRS). There are many similarities between issues that arise with federal income taxes and those that arise for California state income tax purposes. Additionally, California conforms to many of federal tax laws; however, there are some major differences. The federal government taxes income based on citizenship and residency using specifically defined criteria. Determining whether or not your income is taxable in California is a very different story. Ties to the state of California, such as a vacation home or a business license, can sometimes result in taxation by the State of California on people who do not have their primary residence there. This is where one of the major differences between California and federal income tax arises. For federal purposes, the IRS will only assess and enforce income taxes based on information reported by third parties on documents such as 1099s, W-2s, or other tax documents. On the other hand, California will use estimates and comparisons to determine what they believe taxable income would likely be, and then assesses taxes based on this determination. This can lead to many issues including “residency audits.” Taxpayers that reside outside of California are not immune to these potential assessments because California has the ability to levy payments and bank accounts outside of the state if they determine there is a tax liability due.