Approved 2001 Minutes - Wednesday April 18, 2001

The Board met at its offices at 450 N Street, Sacramento, at 10:40 a.m. with Chairman Parrish, Vice Chairman Chiang, Mr. Klehs and Mr. Andal present, Ms. Mandel present on behalf of Dr. Connell in accordance with Government Code Section 7.9.

CORPORATE FRANCHISE AND PERSONAL INCOME TAXES HEARINGS

Hashem Naraghi, 32914

1985, $1,704,177.00 Assessment, $1,287,947.51 Penalties

For Appellant: No Appearance

For Franchise Tax Board: Renel Sapiandante, Tax Counsel

Action: The Board took no action.

McKittrick Ranch, Inc., 98A-0954; 89002464250

1986, $192,880.00

For Appellant: R. Todd Luoma, Attorney

David Bedke, CPA

For Franchise Tax Board: Ann Hoover Hodges, Tax Counsel

Contribution Disclosures pursuant to Government Code Section 15626: No contributions were disclosed.

Issues: Whether appellant’s transfer of property to a creditor in partial satisfaction of debt constitutes a sale or other disposition of the property, resulting in capital gain income, and if so, whether respondent used the correct basis in calculating the amount of such gain.

Whether appellant’s transfer of property in partial satisfaction of debt resulted in forgiveness of debt income, and if so whether such income can be excluded from appellant’s gross income due to appellant’s alleged insolvency.

Whether appellant is entitled to a deduction for accrued interest allegedly paid via the transfer of property.

Whether appellant is entitled to a bad debt deduction for unpaid debts due it from a related, allegedly insolvent partnership.

Whether the assessment is barred by the applicable statute of limitations.

Whether respondent should be estopped from making the assessment, due to a concession made and withdrawn at protest.

Whether interest on the assessment should be abated due to respondent’s allegedly unreasonable delays.

Appellant’s Exhibit: Affidavits of Noel E. Daniells and Phillip Rudnick (Exhibit 4.1)

Respondent’s Exhibit: Individual Grant Deeds (Exhibit 4.2)

Action: Upon motion of Mr. Klehs, seconded by Mr. Andal and unanimously carried, Mr. Parrish, Mr. Chiang, Mr. Klehs and Mr. Andal voting yes, Ms. Mandel abstaining, the Board ordered that the interest accrued during the years 1993-1998 be relieved, due to Franchise Tax Board’s unreasonable errors or delays in performing ministerial acts.

Upon motion of Mr. Andal, seconded by Mr. Klehs and unanimously carried, Mr. Parrish, Mr. Chiang, Mr. Klehs, Mr. Andal and Ms. Mandel voting yes, the Board ordered that the Franchise Tax Board be sustained with respect to the estoppel issue, and deferred the remaining issues to the May Sacramento Board Meeting.

Exhibits to these Minutes are incorporated by reference.

Georgette Stepner, 99A-0094; 89002458610

1990, $133,331.00 Assessment

For Appellant: Jason W. Harrel, Attorney

For Franchise Tax Board: Mark McEvilly, Tax Counsel

Contribution Disclosures pursuant to Government Code Section 15626: No contributions were disclosed.

Issues: Whether appellant has demonstrated that she is entitled to relief as an innocent spouse.

Whether 1990 is the proper tax year for assessment under an "all-events" test.

Whether respondent is barred by the applicable statute of limitations because of a "deemed sale" in 1988.

Appellant’s Exhibit: Tax Reform Act of 1984, Affidavits of Dennis Plummer and Georgette Stepner & Misc. Documents (Exhibits 4.3)

Respondent’s Exhibit: Miscellaneous Documents (Exhibits 4.4)

Action: Upon motion of Mr. Chiang, seconded by Mr. Klehs and unanimously carried, Mr. Parrish, Mr. Chiang, Mr. Klehs, Mr. Andal and Ms. Mandel voting yes, the Board ordered that the appeal be submitted for decision.

The Board recessed at 11:50 a.m. and reconvened at 1:45 p.m. with Mr. Parrish, Mr. Chiang, Mr. Klehs, Mr. Andal and Dr. Connell present.

SPECIAL PRESENTATION

On behalf of the Board, a retirement resolution was presented to Ms. Judith E. "Judy" Newton, Chief, Board Proceedings Division, extending its sincere and grateful appreciation for her dedicated service to the State Board of Equalization and the State of California.

Dr. Connell left the Boardroom and Ms. Mandel entered on behalf of Dr. Connell in accordance with Government Code Section 7.9.

CDA Cable, Inc., 27319

1985, $73,031.00 Assessment

1988, $43,369.00 Assessment

1989, $ 737.00 Assessment

1990, $30,141.00 Assessment, $16,692.00 Claim for Refund

1991, $23,267.00 Assessment, $23,509.00 Claim for Refund

1992, $18, 099.00 Assessment $15,293.00 Claim for Refund

1993, $12,191.63 Assessment, $13,891.00 Claim for Refund

For Appellant: Roy E. Crawford, Representative

Dean Barney, Chief Financial Officer

Gordon Rock, Chairman

For Franchise Tax Board: Jon Jensen, Tax Counsel

Contribution Disclosures pursuant to Government Code Section 15626: No contributions were disclosed.

Issues: Whether voting trust agreements utilized by the shareholders of appellant and other corporations within the group of corporations owned by the shareholders sever the unity of ownership necessary for finding the existence of a unitary business.

Whether Revenue and Taxation Code (R&TC) section 23801 precludes appellant from filing a combined report with four other federal S corporations not qualified to do business in California, for income years beginning on or after January 1, 1990.

Whether interest income received by appellant in installment payments from the sale of the Coeur d’Alene, Idaho, cable television station constitutes business income; and if so, whether appellant should apportion the interest income received using the apportionment factors for the year of receipt of the installment payment or the year of sale of the station.

Appellant’s Exhibit: Miscellaneous Documents (Exhibit 4.5)

Respondent’s Exhibit: Voting Trust Agreement and Misc. Documents (Exhibit 4.6)

Action: Upon motion of Mr. Klehs, seconded by Mr. Andal and unanimously carried, Mr. Parrish, Mr. Chiang, Mr. Klehs, Mr. Andal and Ms. Mandel voting yes, the Board ordered that the appeal be submitted for decision.

Esprit de Corp, 48986

1991, $294,446.00 Assessment

1992, $225,344.00 Assessment

For Appellant: Jeffery M. Vesely, Attorney

Kerne H. O. Matsubara, Attorney

Lillian Jang, Witness

For Franchise Tax Board: Andrea Chang, Tax Counsel

Contribution Disclosures pursuant to Government Code Section 15626: No contributions were disclosed.

Issue: Whether interest expense (incurred to obtain funds to finance a leveraged buyout of its stock and to pay for export quota rights) constituted a business expense, a nonbusiness expense, or should be prorated as part business expense and part nonbusiness expense.

Appellant’s Exhibit: Miscellaneous Documents (Exhibit 4.7)

Action: Upon motion of Mr. Andal, seconded by Mr. Parrish and duly carried, Mr. Parrish, Mr. Chiang, Mr. Andal and Ms. Mandel voting yes, Mr. Klehs voting no, the Board ordered that the appeal be granted with respect to interest expense arising from the leveraged buyout (LBO) of its stock and sustained the action of the Franchise Tax Board with respect to the export quota rights and prorated the LBO fees and merger costs.

The Board recessed at 2:55 p.m. and reconvened at 3:05 p.m. with

Mr. Parrish, Mr. Chiang, Mr. Klehs, Mr. Andal and Ms. Mandel present.

PUBLIC HEARING

STATE ASSESSEE PRESENTATIONS ON THE VALUATION OF THEIR PROPERTIES

PUBLIC COMMENTS

Speaker: Peter W. Michaels, Cooper, White & Cooper, LLP

CORPORATE FRANCHISE AND PERSONAL INCOME TAXES HEARINGS

Edward M. Miller, 79931

1989, $1.00 or more Claim for Refund

1990, $1.00 or more Claim for Refund

For Appellant: Christa Miller

For Franchise Tax Board: Greg Heninger, Tax Counsel

Jean Cramer, Tax Counsel

Contribution Disclosures pursuant to Government Code Section 15626: No contributions were disclosed.

Issues: Whether the Board may determine that a tax debt has been discharged in bankruptcy.

Whether an alleged failure by respondent to promptly release a tax lien upon payment of the debt secured by the lien provides a basis for a claim for refund.

Appellant’s Exhibit: Declaration of Christa Miller (Exhibit 4.8)

Respondent’s Exhibit: Tolling Period of 1989 & 1990 and Account

Analysis Document (Exhibit 4.9)

Action: Upon motion of Mr. Andal, seconded by Mr. Klehs and duly carried,

Mr. Parrish, Mr. Klehs and Mr. Andal voting yes, Ms. Mandel voting no, Mr. Chiang abstaining, the Board ordered that the action of the Franchise Tax Board be modified.

Richard E. Wilmshurst, 55060

1993, $5,680.00, Assessment

For Appellant: Richard E. Wilmshurst

For Franchise Tax Board: Cynthia Kent, Tax Counsel

Joanna Garcia, Tax Counsel

Contribution Disclosures pursuant to Government Code Section 15626: No contributions were disclosed.

Issue: Whether funds appellant has "on deposit" with the State of California, in the form of uncashed state checks, can be offset against the proposed assessment so as to reduce or abate the interest assessed, with any excess being refunded to appellant (with interest).

Respondent’s Exhibit: State of California Refund Check (Exhibit 4.10)

Action: Upon motion of Mr. Andal, seconded by Mr. Klehs and unanimously carried, Mr. Parrish, Mr. Chiang, Mr. Klehs, Mr. Andal and Ms. Mandel voting yes, the Board ordered that the appeal be denied sustaining the action of the Franchise Tax Board and supported the appellant’s filing of a Board of Control claim. Ms. Mandel not participating in the Board of Control claim.

BUSINESS TAXES APPEALS HEARINGS

Carolyn Klayminc, SR KH 99-586706; 28176

7-1-95 to 9-30-97, $5,287.72 Tax, $528.78 Penalty, Negligence

For Petitioner: Carolyn Klayminc

For Sales and Use Tax Department: Kevin Hanks, Hearing Representative

Contribution Disclosures pursuant to Government Code Section 15626: No contributions were disclosed.

Issue: Whether reductions to the audited compilation of recorded taxable sales are warranted.

Whether the evidence shows that some of the recorded amounts of taxable sales represent receipts shared with another distributor.

Whether relief from the 10% penalty for negligence is warranted.

Action: Upon motion of Mr. Andal, seconded by Mr. Klehs and unanimously carried, Mr. Parrish, Mr. Chiang, Mr. Klehs, Mr. Andal and Ms. Mandel voting yes, the Board ordered that the petition be redetermined in accordance with the revised recommendation of the Appeals Section.

Terry Libbon Motors, Inc., SR KHL 28-912502; 27865

4-1-98 to 8-31-98, $50,947.68 Tax

Terry D. Libbon, SR KHL 97-528890; 16487, 27873

4-1-95 to 3-31-98, $159,160.00 Tax, $00.00 Penalty

Cindy L. Libbon, SR KHL 97-538887; 16486, 27867

4-1-95 to 3-31-98, $159,160.00 Tax, $00.00 Penalty

For Petitioner: Appearance Waived

For Sales and Use Tax Department: Warren Astleford, Counsel

Contribution Disclosures pursuant to Government Code Section 15626: No contributions were disclosed.

Issue: Whether the Department's jeopardy determination issued against Libbon Motors for this period was excessive.

Whether Terry Libbon and Cindy Libbon are not personally liable for the unpaid audit liability of Libbon Motors under Revenue and Taxation Code section 6829.

Action: Upon motion of Mr. Klehs, seconded by Mr. Andal and unanimously carried, Mr. Chiang, Mr. Klehs, Mr. Andal and Ms. Mandel voting yes, Mr. Parrish abstaining, the Board ordered that the petition be redetermined as recommended by the Appeals Section.

General Electric Co.

10-1-88 to 3-31-30, $ 159,016.09 Tax, $00.00 Penalty

4-01-91 to 9-30-61, $ 196,924.19 Tax, $00.00 Penalty

10-1-91 to 10-1-91, $1,139,424.07 Tax, $00.00 Penalty

For Petitioner: No Appearance

For Sales and Use Tax Department: Warren L. Astleford, Counsel

Action: The Board took no action.

FINAL ACTION ON APPEALS HEARD APRIL 18, 2001

Upon motion of Mr. Klehs, seconded by Mr. Andal and duly carried,

Mr. Parrish, Mr. Chiang, Mr. Klehs and Mr. Andal voting yes, Ms. Mandel voting no, the Board sustained the action of the Franchise Tax Board in the appeal of Georgette Stepner, 99A-0094; 89002458610.

Upon motion of Mr. Andal, seconded by Mr. Parrish and duly carried,

Mr. Parrish, Mr. Chiang, Mr. Andal and Ms. Mandel voting yes, Mr. Klehs voting no, the Board ordered that the appeal of CDA Cable, Inc., 27319, be granted, reversing the action of the Franchise Tax Board with respect to issue one.

Upon motion of Mr. Andal, seconded by Mr. Parrish and duly carried,

Mr. Parrish, Mr. Andal and Ms. Mandel voting yes, Mr. Klehs and Mr. Chiang voting no, the Board ordered that the appeal of CDA Cable, Inc., 27319, be deferred with respect to issue two and directing the Appeals Section to bring the matter back to the Board at the May Sacramento meeting with a final recommendation.

Upon motion of Mr. Klehs, seconded by Mr. Chiang and duly carried,

Mr. Parrish, Mr. Chiang, Mr. Klehs and Ms. Mandel voting yes, Mr. Andal voting no, the Board ordered that the action of the Franchise Tax Board be sustained in the appeal of CDA Cable, Inc., 27319, with respect to issue three.

The Board adjourned at 3:50 p.m.

The foregoing minutes are adopted by the Board on June 21, 2001