Ali: Retirement Withholding Did Not Establish Payment of the Remaining Assessment

Seeing California tax withheld from a retirement payment can make a later tax bill hard to understand. The important question is how that withholding was credited against the full year’s tax. In Appeal of Ali, 2026-OTA-518 (July 20, 2026), the Office of Tax Appeals sustained an additional assessment after finding that FTB had applied the taxpayer’s payments and he had not shown payment of the remaining amount.

The original return and an early withholding adjustment

Ali timely filed a joint 2019 California return reporting tax of $24,834 and withholding of $26,178. He requested a $1,344 refund. His spouse did not join this appeal.

In July 2020, FTB notified him that it could verify withholding of only $24,851, or $1,327 less than the return claimed. It reduced the refund to $17. Ali did not contest that adjustment. These figures established how the original return’s payments had already been applied before the later income adjustment. Ali begins that history, which continues on the next page.

The later bill followed a federal income adjustment

FTB subsequently received IRS information increasing Ali’s adjusted gross income by $23,239: Pension and annuity income of $23,220 plus $19 of interest. The federal wage-and-income transcript, CP 2000 data sheet and account transcript supported that adjustment. The account transcript showed a February 28, 2022 assessment and no later modification of the federal income adjustment as of the January 27, 2025 transcript date.

FTB proposed additional California tax of $2,742 plus interest. A footnote identifies a $581 premature-distribution tax within the notice’s calculation. Ali’s dispute focused on payment credit, rather than whether he had received the added income. The income and notice figures appear in Ali.

A $232.20 credit reduced the amount under review

Ali protested that FTB had failed to credit California tax withheld from a Fidelity distribution. The opinion describes a distribution and withholding statement reporting $23,220 of taxable distributions and $232.20 of state withholding. Its narrative uses both Form 1099-R and Form W-2 terminology; the actual payer document would be needed to settle that labeling question in a client file.

FTB’s Notice of Action allowed an additional $232.20 credit, reducing the proposed additional tax from $2,742 to $2,509.80. On appeal, FTB said that the same withholding had already been included in the earlier $24,851 total, so the notice had credited it twice. FTB agreed not to increase the proposed assessment to correct that favorable error. The opinion’s second-page footnote preserves that concession; it was not another payment Ali had made.

The taxpayer still needed evidence of error or further payment

The OTA explained that Revenue and Taxation Code section 18622(a) requires a taxpayer to concede a federal income change’s accuracy or identify where it is erroneous. A deficiency assessment based on a federal adjustment is presumed correct, and the taxpayer bears the burden of proving error with credible, competent and relevant evidence.

The opinion applied Todd v. McColgan, 89 Cal.App.2d 509, 514 (1949), and the State Board of Equalization’s Appeal of Brockett and Appeal of Seltzer. Those authorities are discussed in Ali, together with the federal transcript evidence and the taxpayer’s payment argument.

Ali maintained that he had paid all tax due for 2019. The record showed only withholding payments. FTB had credited the verified withholding and the additional $232.20 allowed in the Notice of Action. Ali provided no additional information establishing payment of the remaining $2,509.80. Showing that withholding occurred therefore did not demonstrate that the disputed assessment was wrong or fully paid.

The assessment was sustained on that record

The OTA sustained FTB’s action. The decision makes the accounting distinction concrete: Income affects the tax calculation; withholding is a payment credit; a remaining balance requires examination of both. A payer statement should be compared with the credits already allowed, not read as a receipt settling every later adjustment.

For someone facing a similar notice, the useful file includes the original return, revised-balance notice, proposed assessment, Notice of Action, payer statement, federal adjustment records and proof of any separate payments. Our guide to retirement withholding and a later FTB bill develops that comparison. The separate-notices guide addresses keeping responses to different tax agencies distinct.