California FTB letter: Information Returns (no single public notice number listed)

California FTB information returns are third-party reports of income paid to individuals and businesses—things like W-2s, 1099-NEC forms, 1099-MISC forms, 1099-K forms, K-1s from partnerships or S corporations, and 1099-INT for interest income. Businesses and financial institutions that pay $600 or more to a non-employee, or any amount to an employee, must file these information returns with the FTB as well as the IRS. If you received an FTB letter about information returns, the FTB has spotted a discrepancy between what payers reported to them and what appeared on your California return.

California Revenue and Taxation Code Section 18631 requires extensive information return reporting, and the FTB runs an automated matching program that compares every 1099, W-2, and K-1 it receives to the corresponding tax returns. If the FTB finds income reported on an information return that doesn’t appear on your California return, it will send a notice proposing to add that income and assess the corresponding tax, interest, and sometimes a penalty under Section 19132.

The Reed Corporation handles information return mismatch letters frequently. The most common situations: a 1099-MISC was issued for gross proceeds rather than profit, a 1099-K from a payment processor like PayPal captured total payments including customer refunds, or a K-1 was revised after the original California return was filed. Many of these situations involve legitimate explanations that, when properly documented, eliminate or reduce the proposed assessment.

If the FTB’s matching program finds income on an information return—say a 1099-NEC for $15,000 in freelance payments—that doesn’t match what you reported on your California return, the FTB will issue a Notice of Proposed Assessment under Revenue and Taxation Code Section 19087. That NPA proposes to add the unreported income to your taxable income and assess additional California tax, typically at your marginal rate, plus a 25% accuracy-related penalty under Section 19164 if the underpayment exceeds 25% of the tax shown on your return.

There are legitimate explanations for mismatches that don’t mean you actually underpaid. The 1099 might be for business income that you correctly offset with business expenses on Schedule C—the gross income matches the 1099, but net profit after expenses is lower. The 1099-K from a gig platform might include both taxable income and non-taxable reimbursements. A corrected 1099 might have been issued after your original return was filed. All of these situations require you to respond to the NPA with documentation.

The Reed Corporation prepares responses to FTB information return mismatch notices by building a clear reconciliation between the 1099 amount and what appears on the return. We show the FTB exactly where the income appears (or why it doesn’t), what expenses offset it, and why the net reported amount is correct. A clear reconciliation usually resolves the proposed assessment without an audit.

Yes. California has its own information return requirements that largely mirror federal requirements but apply separately. Under California Revenue and Taxation Code Sections 18631 through 18637, California businesses must file information returns with the FTB for payments of $600 or more in a calendar year to any single non-employee recipient—including independent contractors, rent payments, attorney fees, and awards. The federal 1099 forms satisfy the California filing requirement in most cases if they’re properly filed with the IRS, which electronically shares the data with the FTB.

California also requires withholding on certain California-source payments to out-of-state recipients under the California backup withholding and nonresident withholding rules. If you pay California-source income to a nonresident, you may need to withhold 7% and remit it to the FTB using Form 592-B. Failure to withhold when required results in penalties equal to the amount you should have withheld under Revenue and Taxation Code Section 18668.

The Reed Corporation advises business clients on California information return obligations as part of our annual tax planning process. Getting these filings right matters on both ends—under-reporting can trigger FTB audits of the payer, and over-reporting creates problems for payees who then receive FTB matching notices for income they may not have received in the way reported.

A 1099-K is an information return filed by payment settlement entities—credit card processors, PayPal, Venmo, Etsy, eBay, Amazon, and similar platforms—reporting the gross amount of transactions processed through their systems. Before 2023, the threshold for receiving a 1099-K was $20,000 and 200 transactions. The OBBBA (One, Big, Beautiful Bill) reversed the planned reductions. As of 2025, the federal threshold reverted to $20,000 and 200 transactions. California may apply different rules. California follows its own rules but the FTB also receives 1099-K data.

The problem with 1099-Ks is that they report gross receipts, not net income. If you sold personal property at a loss on eBay—old furniture, sports equipment, items from your closet—those sales appear on a 1099-K even though you didn’t profit from them. Similarly, if your business had $80,000 in 1099-K reported sales but $65,000 in business expenses, your taxable income is $15,000, not $80,000. The FTB’s matching program may flag a discrepancy if it doesn’t see the full $80,000 on your return without realizing it was offset by expenses.

The Reed Corporation helps clients who receive 1099-K forms understand what they need to report and what they don’t. We prepare Schedule C properly to show the full gross 1099-K amount as revenue alongside the offsetting expenses, which satisfies the FTB’s matching program while correctly reporting only the actual taxable profit. For personal property sales below purchase price, we document the cost basis to support zero or negative gain.

If an information return (W-2, 1099-NEC, 1099-MISC, K-1, etc.) filed with the FTB contains an error—wrong amount, wrong Social Security number, wrong year, or income that doesn’t belong to you—your first step is to contact the payer directly. Businesses are required to issue corrected information returns (marked ‘CORRECTED’) when they discover errors, and those corrected returns update both the IRS and FTB records. Ask the payer for a written statement confirming the error and the correct amount.

If the payer won’t issue a corrected form—or if the error is in your Social Security number and they can’t easily fix it—you can still respond to the FTB’s notice directly with documentation explaining the discrepancy. Provide a copy of the original incorrect 1099, any correspondence with the payer about the error, and your own records showing the correct amount. The FTB will consider this documentation in evaluating the proposed assessment.

The Reed Corporation knows how to work the system when payers are unresponsive about correcting information returns. We contact the payer’s payroll or accounting department directly, use IRS Form 4598 (W-2, 1099, or 1099-R Not Received, Incorrect, or Lost) as a formal mechanism to document the dispute, and build the FTB response package around whatever documentation we can gather. Getting the FTB’s matching notice resolved correctly is priority one—we can worry about getting the payer to formally correct the form as a parallel track.