California has recently released a bulletin announcing that it is contacting one million potential California taxpayers (either resident or nonresident) who earned income in 2013, but did not file a California income tax return for the year.
The state typically receives more than 500 million records each year from banks, employers, state government units, the IRS, and other third parties about income received by potential California taxpayers. It takes a while, but gradually the information is compared to lists of filed returns.
If it appears that a taxpayer had income potentially reportable to California, but a California return was not filed, a notice will be generated by the state. Taxpayers receiving such notices have 30 days to file a return, or show why a California return is not due. If no response is received, the state will issue an estimated tax bill based on the records it has.
Many state now have greater access to “data warehousing” programs which allow manipulation and analysis of large amounts of data. This permits a state to make the type of comparative analyses that California is making. If a person receives a 1099, K-1, or similar document purporting to be for payments or income, they should bear in mind that a state has also received a copy of the document and may be expecting that a return will be filed in the state. Please provide a copy of such document to your accountant or tax return preparer, even if the document might have been issued in error.