The position of the California Franchise Tax Board is that gain or loss from the exchange of property located in California is California-sourced income that must be reported to the FTB when the gain or loss is ultimately recognized (i.e., when the replacement property is subsequently sold). This rule applies regardless of whether the taxpayer is residing in or doing business in California at the time the gain is recognized. The Franchise Tax Board recently indicated that one of its top auditing issues involves taxpayers not sourcing gains to California upon disposition of Section 1031 replacement property. To further the FTB's efforts to raise tax revenues, effective January 1, 2014, the California Revenue and Taxation Code requires on-going reporting by California residents and non-residents alike of deferred gain from section 1031 exchanges for non-California property, in addition to longstanding requirements only on out-of-state residents to report deferred gain from section 1031 exchanges of California property. The FTB has a long history of tracking deferred gains or losses of taxpayers that are no longer filing California returns.