CALIFORNIA RESIDENCY TAX SERVICES
planning / audits / appeals
NONRESIDENTS
BUYING VACATION HOMES
BUSINESS/INVESTMENTS
BUYING VACATION HOMES
BUSINESS/INVESTMENTS
California is a favorite vacation destination for the entire world. Hundreds of thousands of nonresidents own vacation homes here (sometimes called “snowbirds"). And they have a perfect right to own a vacation getaway without being deemed residents subject to California's high income tax rate.
Unfortunately, every year hundreds of snowbirds get caught up in California’s aggressive residency tax system and face a residency audit as a result of their vacation home ownership. Some find themselves declared California residents, liable for large income tax assessments. This often occurs due to common mistakes nonresidents make in how they treat their California vacation home, where their mortgage
documents are sent, the form of title they use, and how much time they spend in California versus other states.
Sanger & Manes' decades-long expertise in preparing “vacation home plans” has helped hundreds of snowbirds avoid California’s residency tax traps. Our plans take into consideration the complexities of vacation home ownership, which often includes renting the property part of the year, mortgages with California-based banks, and contacts such as homeowner association membership and vehicle registration and insurance. We assist snowbirds, professional athletes and entertainers, retirees, spouses with different residency status, and industry innovators who work part-time in California, manage their vacation homes to minimize the risk of a residency audit or an unfavorable ruling.
Sanger & Manes also assists nonresidents with California income-producing real estate or business entities. Our comprehensive plans minimize California income taxes and the risk of being deemed a resident due to ownership of in-state assets.
Sanger & Manes' decades-long expertise in preparing “vacation home plans” has helped hundreds of snowbirds avoid California’s residency tax traps. Our plans take into consideration the complexities of vacation home ownership, which often includes renting the property part of the year, mortgages with California-based banks, and contacts such as homeowner association membership and vehicle registration and insurance. We assist snowbirds, professional athletes and entertainers, retirees, spouses with different residency status, and industry innovators who work part-time in California, manage their vacation homes to minimize the risk of a residency audit or an unfavorable ruling.
Sanger & Manes also assists nonresidents with California income-producing real estate or business entities. Our comprehensive plans minimize California income taxes and the risk of being deemed a resident due to ownership of in-state assets.
DEPARTURE PLANS
BUSINESS SITUS PLANNING
BUSINESS SALES/RETIREMENT
Sanger & Manes is the premier firm in preparing “departure plans” for individuals and businesses who want to change their legal residency to another state. Many of our clients are successful entrepreneurs selling their businesses or making a public offering, retirees moving to a lower-tax state, professional athletes and entertainers who can live anywhere, e-commerce innovators who can work remotely, and traders or investors in bitcoin or other cryptocurrency, contemplating a taxable sale or exchange.
The reason for seeking our tax counsel is California aggressive residency tax system. California employs a complex analysis to determine residency for tax purposes, with few bright-line rules. As a result, every year hundreds of individual taxpayers and businesses who thought they moved safely out of state, are swept into residency audits, an investigation by California's Franchise Tax Board, to determine whether they are residents as defined by law. Similarly, many businesses operating out of state find themselves facing tax liability for “doing business” in California, even though they have no physical presence here.
The tax difference between residency and nonesdidency is stark. A nonresident owes taxes only on income with a source in California. But for residents, California taxes all their income, from any source, anywhere in the world. The FTB is motivated to claim high-income taxpayers who move out-of-state for business or retirement purposes remain legal residents, especially if a large taxable event, such as a stock sale or bitcoin-to-dollar conversion, follows shortly thereafter.
4600 NOTICES
RESIDENCY AUDITS
APPEALS
Many nonresidents who own vacation homes, financial accounts or other assets in California receive a notice from the FTB demanding they file a tax return. The notice number is 4600; hence the name “4600 Notice.” It’s a dangerous sign for snowbirds and other out-of-state visitors who have contacts with California. While the 4600 Notice is not the start of an official residency audit, it can be the opening act for one.
Responding to a 4600 Notice can be tricky. What typically triggers the Notice is the FTB receiving a tax document (such as a 1099) sent by the taxpayer's mortgage lender, a business interest, or bank, indicating economic activity or presence in-state. The official purpose of the Notice is to prod recipients to file a tax return for that activity or provide an explanation of why they aren’t required to. But what the FTB also wants to know is a person’s gross income. Needless to say, an entrepreneur or actor making $1 million a year is of more interest to the FTB than a minimum wage worker.
Sanger & Manes has a decades-long record of success in assisting 4600 Notice recipients, from vacation-home owners to out-of-state members of California LLCs, to professional athletes, respond in a way that averts a full-blown audit. Almost 100% of our 4600 Notice clients receive a “release letter” from the FTB, ending the inquiry.
If the FTB does initiate a residency audit or makes an unfavorable audit ruling that should be appealed, Sanger & Manes has a world class expertise in handling audits and appeals. Our success rate in residency appeals is stellar, involving a track record of almost 100% favorable outcomes in two decades of appellate residency tax practice.