i was sent a letter for payment and penalty for a tax year 2011 that i did not make enough to file when i called they said to fax a letter saying i did not make enough and to tell them how i was able to live i told them i lived with my fiancee they told me i have to prove this to them, this is in California
is this correct ? they also said they came up with the dollar amount i owe
because i have a contractors lic. and they went off that my 1099 listed
less then 7000.00 for the year

#1; If the California Franchise Tax Board determines that you have taxable income that you have not reported it can prepare a return for you. This is called an substitute for return. If it does so, then the burden is on you to disprove the income. If you don't act, what will surely follow will be (i) tax levy; (ii) garnishment of wages; (iii) bank levy; and (iv) tax lien. Before the FTB prepared that return for you it almost certainly tried to contact you and you did not respond. You need professional tax help to resolve this problem. Anyone, whether or not holding a license, can be "imputed" to have income by the FTB. You can decide to provide whatever evidence you want to rebut the imputed income. However, you had better have a pretty good case. The burden is on you once the FTB acts. if you file after the FTB has acted, you are too late; that will not put an end to the matter.

NOTE: CA FTB employs an assessment method using categories of professionals to determine if a non-filer should have filed a tax return and reported income.You have a legal duty to filed a tax return, and it is your legal duty to prove that you are not required to file. If you file a tax return with no tax liability, you have fulfilled your duty. This can be the end of the matter unless you are audited.
On the contrary, you can file a tax return without having any income.
You can still claim any credits you qualify for, and thus may receive a tax refund even if you didn't work during the year of 2011.

#2;As mentioned above.