How do I respond to a request to file for a state where I was a military non-resident and don't owe income tax to?

[m-d-holt]

I have received a letter from the IRS requesting I file income tax for 2017. I was stationed in CA with my military spouse with a home of record in WA. I do not owe CA any income tax, but don't know how to clarify that with the IRS.

[DoninGA]

The IRS does not contact you concering a state tax return.  In California that would be the state Franchise Tax Board who contacted you.

Did you earn any type of California sourced income while you were living in California?

[DanielV01]

It depends. I assume that you are referring to the California Franchise Board instead of the IRS, because the IRS regulates Federal taxes.  For 2017, you may or may not have been covered under the MSRRA umbrella.  If you did not share your spouse's residency of Washington either prior to marriage or at some point after marriage, then you were not covered by the MSRRA and would have owed California tax on income you earned while working in California.  The MSRRA allows a nonservicemember spouse to claim the same state of residency only under the circumstances prior to 2018.  Beginning in 2018, the Veterans Benefits and Transition Act of 2018 (click on link for additional information) expanded the provisions of the MSRRA.  Beginning in 2018, if the non-servicemember spouse could claim the same state of residency as his/her servicemember spouse by making the election to do so.  Unfortunately, your situation is from 2017, before the provision was available.  Therefore, unless you were a Washington resident just prior to marrying your husband, or established legal residency in Washington yourself after your marriage, you would be liable for California non-resident tax on income you earned in California in 2017.  

[m-d-holt]

@DanielV01 Yes, I meant the California Franchies Board instead of the IRS. I was a Washington resident before marrying my husband and had it as my home of record. I was employed in California and had income during that time.

I received the same notice for my 2015 taxes and had accountants handle responding the the request. My current plan is to reply with my husbands PCS orders, a copy of my taxes for that year and explain that under MSRRA I was not domiciled in CA during that time. Does that seem like a reasonable way to respond to the request? 

[DanielV01 · Accepted solution]

What you suggest should work.  The FTB website Military Spouses Residency Relief Act (MSRRA) (Click on link) says the following:

You may qualify for a California tax exemption under the MSRAA if all of the following apply:

• You’re not in the military
• You’re legally married to the military servicemember
• You live with your spouse/RDP
• Your military spouse must have permanent change of station (PCS) orders to California
• Your domicile is a state other than California

Thus, supplying the California FTB with proof of the above information (as you suggest in your question), should satisfy them.  If necessary, contact the FTB to see what they will accept as proof of the information (you can access their phone number through the link I provided).