My tax accountant who used to work for IRS said once: if you have problems with IRS and CA FTB, satisfy FTB first, because they are essentially irrational and act like rabid dogs. The state has the entitlement mentally permeating its government. For example if you create a business in CA that never operated and don't dissolve it, they will wait 10 years and come after 800*10 franchise tax plus penalty to the tune of $13,000. If you are a small business, CA is not a good place for you.