FTB 7275: I contributed to an IRA in WA until Dec 2012. January 2013 I had to liquidate and California says I owe CA tax on money I never earned in CA? True?

[garyegger]

I moved to CA in January 2013 and because I changed companies, the company I worked for in WA from 2009-2012 liquidated my IRA and I paid the penalty,

The IRS made the adjustment to my income in the 2013 tax year and I had to pay an additional tax to IRS. I just received an FTB 7275 letter from CA stating that because my income was increased due to this, I now owe CA $1,000.00 because of under reporting income. I did not earn any of this money while residing in CA as it was all earned in WA who does not have a state income tax.

Am I liable to pay CA this proposed amount on income I didn't earn in CA?

[Critter]

CA taxes at the time of distribution just like the feds no matter where you were when you made the contribution.

[VolvoGirl]

And CA used to follow you if you moved to another state but I think that got stopped.

[dmertz]

Although it doesn't change the fact that a distribution made when you were a resident of California is subject to California income tax, this was apparently a distribution from a qualified retirement plan, not an IRA, because no employer has the authority to liquidate an IRA.  Only you as the owner of an IRA have the authority to request a distribution from an IRA.

Note that if the distribution actually occurred *before* you changed your residence from Washington to California, this is not California income, although I think it still might slightly affect the tax that you were required to pay to California because of the way part-year California income tax is calculated.  Since you said that you both moved to California in January 2013 and received the distribution in January 2013, it's not clear if the distribution occurred before or after you became a California resident.  A part-year resident must file a part-year California tax return, Form 540-NR.  If you were a resident of Washington when the distribution occurred, there would be no state income tax since Washington does not have a state income tax.