In 2012, I took a "non-qualified" premature distribution from a retirement plan. I realize that this is taxable on the federal level, and I have paid the federal taxes on it.

I received the funds from the distribution in March 2012 - at this time I was a resident of South Dakota (no state income tax.) All of those funds were earned while I was working living and working in SD.

I moved to and established residence in the state of California at the beginning of May 2012. This qualifies me as a part-year California resident. I did file the part-year resident version of the California tax return for 2012.

Today, I received a Proposed Assessment from the CA Franchise Tax Board claiming that I owe taxes on the premature distribution. Considering that the funds were paid to me while I was a resident of SD, doesn't that mean that I don't owe any CA taxes on that money? I do have copies of documentation showing my lease in CA starting in May of 2012 and can provide this in my protest.

  • But can you provide proof that you were still a resident of South Dakota in March of 2012? – mhoran_psprep Sep 19 '15 at 23:16
  • I do have proof of it through my employer. – Krondorian Sep 19 '15 at 23:25
  • But can you prove that you still lived in South Dakota in March? Giving them a document that doesn't cover the date in question doesn't prove anything. – mhoran_psprep Sep 19 '15 at 23:27
  • The paystubs I have from my employer show that I was living and working in South Dakota on the date that the distribution was made. – Krondorian Sep 19 '15 at 23:38
  • Than that's what you need to use. – mhoran_psprep Sep 19 '15 at 23:45

California is very aggressive when it comes to determining residency. While you have a legitimate defense, I suggest talking with a California-licensed CPA or EA practicing in California, which are experienced in dealing with the FTB residency audits.

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