Appendices Taxpayers’ Bill of Rights Annual Report to the Legislature

Appendix 1 – assessments

All tables in Appendix 1 reflect tax increase assessments only. The assessments became final in Fiscal Year 2024/2025. We may have issued the assessments in prior years; however, due to cases in protest status, we did not resolve them until Fiscal Year 2024/2025. Appendix 1 totals reflect rounded figures and may not compute exactly.

Table 1A corporation tax law

Explanation for table 1A:

• Allocation/Apportionment involves corporations doing business within and outside of California.
• Revenue Agent Reports typically result when California conforms to federal law, and a change to a taxpayer’s federal tax return applies to the taxpayer’s California tax return.
• State Adjustments reflect the differences between the Internal Revenue Code and the California Revenue and Taxation Code.

Table 1B personal income tax law

Explanation for table 1B:

• The CP2000 category results from the IRS comparing information documents that report income paid to individuals by third parties against income reported on their tax returns.
• Filing Enforcement refers to assessments issued to individuals who have not filed a state income tax return after we notified them of their filing requirement.
• Filing Status primarily reflects notices issued due to head of household adjustments.

Table 2 corporation tax law

* Finance, insurance, real estate, and holding companies.

** Includes agriculture, construction, utilities, transportation, communication, information, and other industries not classified in the sample.

For corporations not filing through a combined report, we base the industry designation on the corporation’s primary business activity in California. In the case of corporations filing through combined reports, we base the industry designation on the primary occupation of the group, not necessarily on the industry of the parent. If the parent is a holding company of a diverse group of subsidiary corporations, then we group it with finance, insurance, real estate, and holding companies.

Tables 3A, 3B, and 4, apply to either the taxable years for which we issued NPAs or the number of years for which a taxpayer receives NPAs because of multiple taxable year audits during the same audit cycle.

Table 3A corporation tax law

Table 3B corporation tax law

Table 4 personal income tax law

Table 5 reflects electronically filed personal income tax returns.

Table 5 personal income tax law

*VITA is a program that provides tax return preparation assistance for seniors, disabled, non-English speaking, and those with limited or fixed incomes.

Appendix 2 – filing errors

Table 6A top errors by tax return type

Table 6B top errors by filing method

Appendix 3 – regulations

Regulation sections 17951-5 and 17951-8 — market-based rules — personal income tax sourcing

When California adopted market-based sourcing rules pursuant to Proposition 39 as codified in R&TC Section 25136, these rules impacted the Personal Income Tax law. Title 18, of the California Code of Regulations (CCR) in Section 17951-4 directly incorporates R&TC Sections 25120 through 25139 and the regulations thereunder. Therefore, owners of pass-through entities and disregarded entities (such as, sole proprietorships) are also subject to market-based sourcing rules.

The purpose of this regulation project is to clarify the regulations concerning sourcing of income subject to market-based sourcing. The project also will clarify which sourcing rules remain unchanged.

The three-member Board approved staff's request to begin the informal regulatory process on December 3, 2019. On October 8, 2020, staff held an interested parties meeting (IPM) and received comments from the public. On September 9, 2024, staff received permission from the three-member Board to proceed to the formal regulatory process. Staff is now finalizing the required regulatory documents and will be submitting them to the approval agencies. After we have received approval, we will submit them to the Department of Finance (DOF) for their required review. Staff anticipates publishing the Notice of Proposed Rulemaking in early 2026.

Regulation section 17951-7 — tax deferred exchanges

On June 27, 2013, the California Legislature enacted AB 92. (Stats. 2013, Ch. 26.) Under AB 92, for taxable years beginning on or after January 1, 2014, taxpayers who perform Internal Revenue Code (IRC) Section 1031 exchanges of property located in California for property located outside of California are required to file an annual information return with FTB for each year in which the gain or loss from that exchange has not been recognized. (Refer to R&TC Sections 18032 and 24953.) The FTB has received numerous requests for clarification of the determination of California source income in such exchanges. This project seeks to clarify the sourcing of deferred gains/losses from IRC Section 1031 exchanges of property located in California.

Staff held IPMs in 2016, 2021, and 2022. We noticed amended proposed regulation draft language in a 30-day notice on August 21, 2024. We next anticipate noticing further proposed regulatory text modifications and scheduling another IPM in late 2025.

Regulation sections 18662-4 through 18662-8 — withholding on domestic pass-through entities

The purpose of this project is to revise the existing requirements for withholding on pass-through entities to reflect current statutory requirements under R&TC Section 18662. In particular, the purpose of the proposed new regulation at CCR Section 18662-7 is to modify the withholding requirements for pass-through entities to withhold on the “distributive share” of income. In addition, the proposed regulation seeks to adopt a withholding scheme that best resolves the issues arising from the allocation of withholding, specifically, as it relates to pass-through entities.

Staff held two IPMs and posted four Notices of Proposed Amendments that sought public comment. We are currently finalizing the required regulatory documents. Once those are complete, we will submit the Notice of Proposed Rulemaking to the Office of Administrative Law (OAL) for publication. Staff anticipates publishing the Notice of Proposed Rulemaking in late 2025.

Regulation sections 23701, 23772, and 23775 through 23778 — exemption from taxation

Since 2009, several statutory amendments have been made to the various California Revenue and Taxation Code sections related to exempt corporations. As such, the FTB is proposing possible amendments to the regulations, which reflect the changes made to the statutes.

Staff held an IPM on June 18, 2024, to solicit input from the public as to whether additions or amendments to the regulations are necessary. On July 3, 2025, staff published a 30-day Notice of Proposed Amendments to the regulatory text with an explanation document seeking public comment. Staff is reviewing comments and continues to develop this regulatory concept.

Regulation section 25136-2 — market-based rules for sales other than sales of tangible personal property

CCR Section 25136-2 provides rules for sales of other than tangible personal property. This project seeks to simplify the existing rules for assigning sales of services, and provides specific sourcing rules for certain industries, including asset management services, and large volume professional services.

Staff held IPMs each year from 2017 through 2021 to review draft amendments with the public. We published the Notice of Proposed Rulemaking with OAL on September 13, 2024. Thereafter, staff noticed modified text on January 6, 2025, held a public hearing on January 30, 2025, and noticed additional modified text which included an update to the proposed applicability date provision, on May 20, 2025. On August 27, 2025, the OAL approved the regulatory project and the amended regulation became effective on October 1, 2025.

Appendix 4 – certification letter

Read the letter