State Tax on IRA distribution - Not stayed in CA in that year?

Question

Do I need to file CA state tax - here is my situation:
- I took some Early IRA distribution
- I was out of USA for the whole year, so not stayed in CA for that year.
- Have filed Federal taxes.
- Prior to that I was living in CA and now back to CA
- I'm US permanent resident

CA tax instructions say that you may have to file CA taxes even if you have not stayed in CA for that year if there is an income from CA source. Does the IRA distribution will be considered income from CA source?

Answer 1

"CA tax instructions say that you may have to file CA taxes even if you have not stayed in CA for that year if there is an income from CA source."

This is correct. There is a famous court case. The FTB (CA tax authority) won the case against a CA resident living in Vietnam all year long.

"Does the IRA distribution will be considered income from CA source?"

This is Publication 1031: 2006 Guidelines for Determining Resident Status

http://www.ftb.ca.gov/forms/06_forms/06_1031.pdf

A resident is any individual who is:
• In California for other than a temporary or transitory
purpose; or
• Domiciled in California, but outside California
for a temporary or transitory purpose.
A nonresident is any individual who is not a resident.
A part-year resident is any individual who is a California
resident for part of the year and a nonresident for part of
the year.
The term “domicile” has a special legal definition that is not the same as residence. While many states consider domicile and residence to be the same, California makes a distinction and views them as two separate concepts, even though they may often overlap. For instance, you may be domiciled in California
but not be a California resident or you may be domiciled in another state but be a California resident for income tax purposes. Domicile is defined for tax purposes as the place where you voluntarily establish yourself and family, not merely for a special or limited purpose, but with a present intention of making it your true, fixed, permanent home and principal establishment. It is the place where,
whenever you are absent, you intend to return.

In other words, you could live outside of the US all year long and be a Californian.

Of course the FTB have several ways to test you:

Amount of time you spend in California versus amount of time you spend outside California;
• Location of your spouse and children;
• Location of your principal residence;
• Where your driver’s license was issued;
• Where your vehicles are registered;
• Where you maintain your professional licenses;
• Where you are registered to vote;
• Location of the banks where you maintain accounts;
• Location of your doctors, dentists, accountants, and
attorneys;
• Location of the church, temple or mosque, professional
associations, or social and country clubs of which you
are a member;
• Location of your real property and investments;
• Permanence of your work assignments in California;
and
• Location of your social ties.

These are some of the things that the FTB look for. Especially, if you file your CA tax return every year and there is one missing. That will be the red flag to them. Usually, you will get a letter in the mail explaining the situation within 2 years from the due date.

(See the publication about safe harbor rule. There maybe a way out of CA taxation.)

**********************************************

Nonresident/part year resident of CA booklet

http://www.ftb.ca.gov/forms/06_forms/06_540nrbk.pdf

Nonresidents of California Receiving a California Pension California does not impose tax on retirement income attributable to services performed in California received by a nonresident after December 31, 1995.

or

http://www.ftb.ca.gov/forms/06_forms/06_1031.pdf

Answer 2

If you moved from CA to a foreign country and did not return to the US anytime during that year. You may be able to avoid CA income tax. There is a question regarding where you earned the money that was in the IRA and your tax home when your received that money. If the earnings were from work while you were out of the US you may be able to exclude that from both Fed and CA tax. You can not avoid the 10% Fed penalty on the early distribution. You really need to sit down with a tax professional familiar with foreign earnings before you file your Fed or state return.

Answer 3

I believe this depends on the location of your permanent residence. Therefore, I believe the income is CA state taxable. Go to irs.gov and run a search for IRS pub 590. That contains all rules and regulations for IRAs.

Answer 4

California does not tax IRAs for nonresidents. If you did not live in California for the entire year, file a nonresident California tax return if you are otherwise required to file.