Approved 2000 Minutes - Friday, June 30, 2000 Board of Equalization

The Board met at its offices at 5901 Green Valley Circle, Culver City, at 9:00 a.m. with Chairman Andal, Mr. Klehs and Mr. Chiang present, and Ms. Mandel present on behalf of Dr. Connell in accordance with Government Code Section 7.9.

FRANCHISE AND INCOME TAXES HEARINGS

John H. Williams, 99A-0286; 89002468900

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

Issue: Whether appellant’s minor daughter met the requirements to be appellant’s qualifying individual so that he was entitled to use head of household filing status for 1994, even though appellant agreed to a federal determination that designated single filing status.

Whether appellant has substantiated his disallowed claimed deductions for 1994 through 1996.

Whether appellant has shown reasonable cause for the abatement of the accuracy-related penalties imposed for 1994 through 1996.

Appellant’s Exhibit: School Records (Exhibit 6.22)

Action:Upon motion of Mr. Klehs, seconded by Mr. Andal and unanimously carried, Mr. Andal, Mr. Klehs and Mr. Chiang voting yes, Ms. Mandel abstaining,

Mr. Parrish absent, the Board ordered that the appeal be granted.

Exhibits to these Minutes are incorporated by reference.

Leonard Pasternak, 99R-0401; 27703

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

Issue: Whether appellant has shown reasonable cause for relief from the late filing and notice and demand penalties.

Whether interest should be abated.

Respondent’s Exhibit: NDF Notice (Exhibit 6.23)

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

Disney Enterprises, Inc., 98A-1203; 89002460640

9-30-87, $312,727.00

Contribution Disclosures pursuant to Government Code Section 15626: Disqualifying Contributions were disclosed for Mr. Klehs. No other disqualifying contributions were disclosed.

Issue: Whether California Code of Regulations, title 18, (regulation) section 25137-8 contains a special sales factor rule for royalties from the licensing of rights to reproduce motion pictures on videocassettes for home use, or whether the standard sales factor rules of Revenue and Taxation Code (section) section 25136 apply.

Appellant’s Exhibit: Chart (Exhibit 6.24)

Mr. Parrish entered the Boardroom. Ms. Mandel left the Boardroom.

Action:Upon motion of Mr. Parrish, seconded by Mr. Chiang and unanimously carried, Mr. Andal, Mr. Parrish and Mr. Chiang voting yes, Mr. Klehs not participating and Ms. Mandel absent, the Board ordered that the appeal be submitted for decision.

Pentel of America, Ltd., 98A-0014; 89002464880

3-31-89, $177,126.00

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

Issue: Whether appellant has shown that respondent is not entitled to tax, upon a water’s edge election by appellant, the deferred gain on sales of inventory by foreign members of appellant’s unitary group to appellant in the two income years preceding the water’s edge election.

Whether appellant has shown that, if such inventory is taxable, the apportionment factors to be applied should be the apportionment factors for the income year immediately preceding the water’s edge election.

Whether appellant has shown that, if such inventory is taxable, there should be an adjustment to the amount of gain that takes into account the sale of inventory to appellant for its income year ended March 31, 1986.

Whether appellant has shown that respondent is not entitled to "throw back" appellant’s sales of inventory from California to three other states.

Whether appellant has shown that the amount of deferred gain on sales of inventory to appellant is overstated as a result of respondent’s failure to make certain adjustments allegedly required by Revenue and Taxation Code section 24422.3.

Appellant’s Exhibit:Intercompany Profit in Inventory, Excerpt from FTB Hearing Summary, Cal. R&TC 25122, Cal Regulation 25122, FTB letter, Basis of Taxes in Florida, Ohio and Texas (Exhibit 6.25)

Respondent’s Exhibit: FTB Citations (Exhibit 6.26)

Ms. Mandel entered the Boardroom.

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

Yamaha Motor Corporation, USA, 99A-0226; 89002467500

3-31-90, $229,623.00

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

Issue: Whether appellant should be required to recognize any portion of profits from inter-company inventory sales in its water’s edge combined report if those profits were properly eliminated from its combined report in the year prior to making a water’s edge election.

If so, to what extent should those profits be included in the waters edge report.

Respondent’s Exhibit: FTB Citations (Exhibit 6.27)

Kathy Freeman Memo (Exhibit 6.28)

The Board recessed at 10:55 and reconvened at 11:00 with Mr. Andal,

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

Action:(Motioned Expunged)

The Board ordered to expunge the previous motion.

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

Mr. Parrish, Mr. Andal, Mr. Chiang and Ms. Mandel voting yes, Mr. Klehs voting no, the Board ordered that the appeal be granted.

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

Mr. Andal, Mr. Parrish and Mr. Klehs voting yes, Mr. Chiang voting no, Ms. Mandel abstaining, the Board ordered staff to prepare a Formal Opinion sustaining the taxpayer, with the determination becoming final when the Board approves the written opinion.

FINAL ACTIONS ON APPEALS HEARD JUNE 30, 2000

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

Mr. Andal, Mr. Parrish, Mr. Chiang and Ms. Mandel voting yes, Mr. Klehs voting no, the Board ordered the Appeals Section to draft a proposed decision in favor of the appellant in the appeal of Pentel of America LTD., 98A-0014; 89002464880, on the first issue and bring back before the Board for decision.

Upon motion of Mr. Andal, seconded by Mr. Klehs and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board ordered to sustain the Franchise Tax Board on the third and fifth issues.

Upon motion of Mr. Andal, seconded by Mr. Klehs and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board ordered additional briefing on issue four, throwback.

Mr. Klehs directed staff to bring no other similar appeals before the Board until the issues pertaining to Pentel of America, LTD., 98A-0014; 89002464880, are resolved.

Upon motion of Mr. Andal, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Chiang and Ms. Mandel voting yes, Mr. Klehs not participating in accordance with Government Code Section 15626,the Board ordered that the appeal of Disney Enterprises, Inc., 98A-1203; 89002460640, be granted.

FRANCHISE AND INCOME TAXES HEARINGS

Helmi A. Hisserich, 99A-031; 89002469560

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

Issue: Whether appellant may claim the minor child of appellant’s domestic partner as the qualifying individual for head of household filing status.

Whether the doctrine of equitable estoppel applies to estop respondent from asserting additional tax liability against appellant by revising appellant’s filing status from head of household to single and consequently reducing her standard deduction.

Appellant’s Exhibit: Letter (Exhibit 6.29)

Action:Mr. Andal moved to deny the petition, seconded by Mr. Parrish, but failed to carry, Mr. Andal and Mr. Parrish voting yes, Mr. Klehs and Mr. Chiang voting no,

Ms. Mandel abstaining.

Mr. Chiang and Ms. Mandel left the Boardroom.

Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish and Mr. Klehs voting yes, Mr. Chiang and Ms. Mandel absent, the Board ordered the appeal be deferred for consideration to the next Board meeting.

Mr. Chiang and Ms. Mandel entered the Boardroom.

FINAL ACTIONS HEARD JUNE 30, 2000

Upon motion of Mr. Chiang, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board ordered that the claim for refund of Leonard Pasternak, 99R-0401; 27703, be granted as to the penalties and sustaining the Franchise Tax Board on fees and interest.

FRANCHISE AND INCOME TAX HEARINGS

Gene L. Clothier, 27809

Action:Upon motion of Mr. Andal, seconded by Mr. Klehs and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, the Board ordered to sustain the action of the Franchise Tax Board.

Farmer Bros. Co., 99R-0255; 89002468630 and 58034

Income Years Ended Claims for Refund

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

Issue: Whether the Board of Equalization may determine if Revenue and Taxation Code section 24402 violates the United States Constitution.

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

Mr. Andal, Mr. Klehs and Ms. Mandel voting yes, Mr. Parrish voting no, Mr. Chiang not participating, the Board ordered that the claims for refund be denied, sustaining the action Franchise Tax Board.

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

Issue: Whether appellant has established that any officer or employee of respondent, acting in his or her official capacity in performing a ministerial act, caused any unreasonable error or delay such that interest should be abated.

Claimant’s Exhibit: Request for Abatement of Interest (Exhibit 6.30)

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

The Board recessed at 12:00 p.m. and reconvened at 1:30 p.m. with

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

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

Issue: Whether appellant has shown "reasonable cause" for late payment of tax.

Whether appellant has shown that interest should be abated.

Whether appellant has shown that lien and collection fees were improperly imposed.

Claimant’s Exhibit: Form 1040 (Exhibit 6.31)

Printouts and Letters (Exhibit 6.32)

Respondents Exhibit: Notice of State Income Tax Due (Exhibit 6.33)

Mr. Chiang entered the Boardroom.

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

Leonard Jaffe, 30751

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

Issue: Whether a partnership’s agreements to plug and cap abandoned oil and gas wells constitute an existing partnership liability that increases appellant’s outside basis in the partnership.

Appellant’s Exhibit: Report (Exhibit 6.34)

Robert H. and Diane S. Lipp, 31918

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

Issue: Whether appellants have shown that reasonable cause existed for their failure to respond to respondent’s notice and demand to file a 1994 tax return.

Claimant’s Exhibit: Declaration of Robert Lipp (Exhibit 6.35)

Action:Upon motion of Mr. Klehs, seconded by Mr. Chiang and unanimously carried, Mr. Parrish, Mr. Klehs and Mr. Chiang voting yes, Ms. Mandel not participating, Mr. Andal absent, the Board ordered that the claim for refund be granted.

Michael W. Taylor, 28695

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

Issue: Whether appellant’s claims are barred by the applicable statue of limitations.

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

Mr. Chiang left the Boardroom.

Accurate Metal Fabricators, Inc. 32552

Darren and Julie Appling, 32561

John E. and Alicia R. Kruger, 32597

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

Issue: Whether respondent properly recaptured in the 1996 income year of appellant Accurate Metal Fabricators, Inc., (AMF) a deduction previously taken under former Revenue and Taxation Code section 24356.4, subdivision (a), with respect to "section 24356.4 property."

Appellant’s Exhibit: Letter (Exhibit 6.36)

Action:Mr. Parrish moved to grant the appeal. The motion failed for lack of a second.

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

William G. and Margaret D. Kapler, 31669

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

Issue: Whether appellants have shown that they had basis for tax purposes with respect to a promissory note that they received from a corporation that went bankrupt in 1990.

John and Kathryn Taylor, 98A-0989; 89002465960

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

Issue: Whether appellant’s basis in Wayne Building Enterprises, Inc., is sufficient to permit deduction in full of the losses generated by that corporation.

Whether appellant has demonstrated reasonable cause such that the late filing penalty should be abated.

Action: Upon motion of Ms. Mandel seconded by Mr. Klehs and unanimously carried, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, Mr. Andal absent, the Board ordered the appeal be deferred for consideration to the next Board meeting.

Metro Commercial Corporation, 98A-1357; 89002464340

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

Issue: Whether appellant has shown that it was entitled to deduct as a business expense salary allegedly paid to its president.

Appellant’s Exhibit: Supplemental Evidence (Exhibit 6.37)

Respondent’s Exhibit: Domestic Stock Statement, Briefing Exhibits (Exhibit 6.38)

George and Amelia Hatcher, 99A-0180; 89002467890

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

Issue: Whether appellants have met their burden to prove error in the proposed assessment, or the federal action on which it is based.

Whether the accuracy-related penalty should be relieved.

Appellant’s Exhibit: IRS Penalty Computation (Exhibit 6.39)

Respondent’s Exhibit: Domestic Stock Statement, Briefing Exhibits (Exhibit 6.40)

Action:The Board submitted for decision.

Manlio B. and Carolina Melillo, 99A-0356; 89002469710

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

Issue: Whether appellants have met their burden to prove error in the proposed assessments, or the underlying federal actions.

Appellant’s Exhibit: Misc. Exhibits (Exhibit 6.41)

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

The Board recessed at 3:30 and reconvened at 3:35 with Mr. Parrish,

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

FINAL ACTIONS ON CASES HEARD JUNE 30, 2000

Upon motion of Mr. Klehs, seconded by Mr. Chiang and unanimously carried, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, Mr. Andal absent, the Board ordered the action of the Franchise Tax Board be modified on the appeal of George and Amelia Hatcher, 99A-0180; 89002467890.

Upon motion of Mr. Klehs, seconded by Mr. Chiang and unanimously carried, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, Mr. Andal absent, the Board ordered that the appeal of Jeff Powell, 29713, be denied.

Upon motion of Mr. Chiang, seconded by Ms. Mandel and unanimously carried, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, Mr. Andal absent, the Board ordered that the appeal of Michael W. Taylor, 28695, be denied.

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

Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, Mr. Parrish voting no, Mr. Andal absent, the Board ordered that the appeal of Accurate Metal Fabricators, Inc. 32552, Darren and Julie Appling, 32561, John E. and Alicia R. Kruger, 32597, be denied.

Mr. Klehs moved to sustain the Franchise Tax Board, seconded by

Mr. Chiang but failed to carry, Mr. Klehs, Mr. Chiang voting yes, Mr. Parrish and

Ms. Mandel voting no, Mr. Andal absent on the appeal of John and Kathryn Taylor,

98A-0989; 89002465960.

The appeal was submitted for decision.

Upon motion of Mr. Klehs, seconded by Mr. Chiang and unanimously carried, Mr. Parrish, Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, Mr. Andal absent, the Board ordered in the appeal of Leonard Jaffe, 30751, to sustain as modified the action of the Franchise Tax Board and directed staff to make an estimate of the cost for plugging and capping the 2 wells in 1992.

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

Mr. Klehs, Mr. Chiang and Ms. Mandel voting yes, Mr. Parrish voting no, Mr. Andal absent, the Board ordered that the appeal of Manlio B. and Carolina Melillo, 99A-0356; 89002469710, be denied.

FRANCHISE AND INCOME TAX HEARINGS

Eddie L. Robinson, 99A-0365; 89002469800

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

Issue: Whether appellant has shown that the proposed assessment is erroneous.

Appellant’s Exhibit: Misc. letters and exhibits (6.42)

Respondent’s Exhibit: 540EZ(Exhibit 6.43)

Mr. Klehs left the Boardroom.

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

Joseph L. Gruber, 99A-0264; 89002468720

Bogda J. Gruber, 99A-0264; 89002468720

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

Issue: Whether appellants have met their burden to prove error in the proposed assessments, or the underlying federal actions.

Whether appellants have shown that delinquent filing, notice and demand, and negligence penalties were erroneously assessed.

Appellant’s Exhibit: Summary of Appeal, Photographs (Exhibit 6.44)

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

Peymon Mottahedeh, 29499

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

Issue: Whether appellant has shown that the proposed assessment of tax and penalties is erroneous.

Whether a frivolous appeal penalty should be imposed, pursuant to Revenue and Taxation Code section 19714.

Appellant’s Exhibit: Public Records Act, Misc. Exhibits (6.45)

Lynn T. Blumberg, 30357

Action:The Board took no action.

Shauna E. Sorensen, 96A-0818; 89002459330

1979, $16,335.00 Tax, $816.75 Penalty

Action:The Board took no action.

Joseph L. Gallagher, 41108

Action:The Board took no action.

Stanley A. and Betty A. Ratlaff, 32909

Action:The Board took no action.

William C. and Mary B. Hayes, 34342

Action:The Board took no action.

Don McComas Enterprises, Inc., 27814

12-31-90, $134,109.00

Action:The Board took no action.

Fuji Bank, Limited & Subsidiaries, 99R-0258; 89002468660

3-31-93, $1,942,826.00

3-31-94, $2,046,758.00

Action:The Board took no action.

Steven O’Donnell, 31094

Action:The Board took no action.

Susan Truesdell, 99A-0005; 89002460850

Action: The Board took no action.

FINAL ACTION ON APPEALS HEARD JUNE 30, 2000

Upon motion of Mr. Chiang seconded by Ms. Mandel and unanimously carried, Mr. Parrish, Mr. Chiang and Ms. Mandel voting yes, Mr. Andal and Mr. Klehs absent, the Board ordered the action of the Franchise Tax Board be modified on the appeal of Eddie L. Robinson, 99A-0365; 89002469800.

Upon motion of Mr. Chiang seconded by Ms. Mandel and unanimously carried, Mr. Parrish, Mr. Chiang and Ms. Mandel voting yes, Mr. Andal and Mr. Klehs absent, the Board ordered that the appeal of Joseph L. Gruber, 99A-0264; 89002468720, Bogda J. Gruber, 99A-0264; 89002468720, be denied.

Upon motion of Mr. Parrish seconded by Mr. Chiang and unanimously carried, Mr. Parrish, Mr. Chiang and Ms. Mandel voting yes, Mr. Andal and Mr. Klehs absent, Board ordered that the appeal of Peymon Mottahedeh, 29499, be denied, adding a $500 frivilous appeal penalty.

The foregoing minutes are adopted by the Board on September 14, 2000.