Approved 2000 Minutes - Friday, December 1, 2000

The Board met at its offices at 5901 Green Valley Circle, Culver City, at 9:10 a.m. with Vice Chairman Parrish and Mr. Klehs present, Ms. Mandel present on behalf of Dr. Connell in accordance with Government Code Section 7.9.

FRANCHISE AND INCOME TAXES HEARINGS

Shauna E. Sorensen, 96A-0818; 89002459330
1979, $16,335.00 Assessment, $816.75 Penalty

For Appellant: No Appearance
For Franchise Tax Board: Mark McEvilly, Counsel

Action: The Board took no action.

William C. & Mary B. Hayes, 34342
1992, $41,297.00 Assessment

For Appellant: Steve Mather, Attorney
For Franchise Tax Board: Renel Sapiandante, Counsel

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

Issue: Whether respondent correctly adjusted appellants' taxable income to reflect changes in the reported losses of two pass-through entities.

Action: Upon motion of Mr. Klehs, seconded by Ms. Mandel and unanimously carried, Mr. Parrish, Mr. Klehs and Ms. Mandel voting yes, Mr. Andal and Mr. Chiang absent, the Board ordered that the appeal be deferred for 90 days to allow Mrs. Hayes to file an innocent spouse claim.

Upon motion of Ms. Mandel, seconded by Mr.  Parrish and unanimously carried, Mr. Parrish, Mr. Klehs and Ms. Mandel voting yes, Mr. Andal and Mr. Chiang absent, the Board ordered that the matter be returned to the board in 90 days if issues are not resolved.

Mr. Andal entered the Boardroom.

Gopi R. Jindal, 56627
1995, $1,495.00 Assessment

For Appellant: Gopi R. Jindal
For Franchise Tax Board: Suzanne Small, Tax Counselor

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

Issue: Whether respondent properly calculated the tax due on appellant's California-source income.

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

Douglas S. & Betty L. Wong, 28687

1988, $43,408.00 Assessment, $13,800.00 Penalty

1989, $47,405.00 Assessment

1990, $45,753.00 Assessment

1991, $49,963.00 Assessment

1992, $45,925.00 Assessment

For Appellant: Milton K. Low, Representative
For Franchise Tax Board: Terry Collins, Tax Counsel

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

Issues: Was appellant-husband a resident of California during tax years 1988, 1989, 1990, 1991 and 1992?

If appellant-husband was not a resident of California during tax years 1988, 1989, 1990, 1991 and 1992, are appellants subject to California tax on appellant-wife's community property share of appellant-husband's income for those years?

Was the negligence penalty properly imposed for tax year 1988?

Appellant's Exhibit: Historic Growth: U.S. Census, 1900-1990, (Exhibit 12.1)

Action: Upon motion of Mr. Klehs, seconded by Mr. Andal and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs,and Ms. Mandel voting yes, Mr. Chiang absent, the Board ordered that the appeal be granted with respect to the residency issue.

Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs and Ms. Mandel voting yes, Mr. Chiang absent, the Board ordered that the negligence penalty be deleted.

Upon motion of Mr. Klehs, seconded by Mr. Andal and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs and Ms. Mandel voting yes, Mr. Chiang absent, the Board ordered that the action of the Franchise Tax Board be sustained with respect to the community property issue.

Exhibits to these Minutes are incorporated by reference.

Continental Culture Specialists, Inc., 15460

1988, $ 3,062.97 Assessment

1989, $ 7,142.55 Assessment

1990, $16,676.22 Assessment

For Appellant: Rosa Berman, Attorney
For Franchise Tax Board: A. Kent Summers, Tax Counsel

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

Issues: Whether appellant has shown that respondent's proposed assessment of tax for appellant's income year ended June 30, 1988 (appellant's 1987 income year) should properly be barred as untimely.

Whether appellant has overcome the presumption of the correctness of respondent's determinations that were based on a federal audit report.

Appellant's Exhibit: Miscellaneous Tax Documents, (Exhibit 12.2)

Respondent's Exhibit: Miscellaneous Tax Documents, Exhibit 12.3)

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

The Board recessed at 10:35 a.m. and reconvened at 10:50 a.m. with Mr. Andal, Mr. Klehs and Ms. Mandel present.

Estate of Mary J. Miller, Deceased, 61404
1996, $687.00 Assessment, $171.75 Penalty

For Appellant: Randy Gafner, Appellant's Son
For Franchise Tax Board: Suzanne Small, Tax Counsel

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

Issues: Whether appellant has shown that respondent's determinations, based on a federal audit report, is erroneous.

Whether appellant has shown "reasonable cause" for a failure of Mary J. Miller ("the decedent") to file a tax return for 1996 in a timely manner.

Mr. Parrish entered the Boardroom.

Action: Upon motion of Mr. Klehs, seconded by Ms. Mandel and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs and Ms. Mandel voting yes, Mr. Chiang absent, the Board ordered that the appeal be granted with regards to the failure to file penalty.

Upon motion of Mr. Klehs, seconded by Mr. Andal and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs and Ms. Mandel voting yes, Mr. Chiang absent, the Board ordered to sustain the action of the Franchise Tax Board with regards to the determination based upon the federal audit report.

Ginger L. & David A. Farrand, 53635
1989, $67,080.00 Assessment, $16,770.00 Penalty, Delinquent Filing

$ 3,354.00 Penalty, Negligence

For Appellant: John A. Harbin, Attorney
David A. Farrand, Petitioner
For Franchise Tax Board: Sherman Eatmon, Tax Counsel

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

Issues: Whether appellants have met their burden to prove error in the proposed assessment, or the underlying federal action.

Whether the Board should grant relief from the delinquent filing and negligence penalties.

Appellant's Exhibit: Summary of Review of Source Documents, (Exhibit 12.4)

Action: Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs and Ms. Mandel voting yes, Mr. Chiang absent, the Board ordered that the appeal be submitted for decision, granting the Franchise Tax Board 30 days to review new documentation and the Appeals Section 30 days thereafter to bring the matter back to the Board with a recommendation.

Roland J. & Helen M. Jensen, 99A-0454; 18047
1996, $65,505.00 Assessment

For Appellant: Gary A. Holford, Attorney
For Franchise Tax Board: Sherman Eatmon, Tax Counsel

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

Issue: Whether respondent incorrectly calculated and applied appellants' solar energy tax credit.

Appellant's Exhibit: Declaration of Roland Jensen Payment on Promissory Notes, (Exhibit 12.5)

Respondent's Exhibit: Letter from Mr. Zlaket addressed to Ms. Espindola, FTB (Exhibit 12.6)

Action: Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs and Ms. Mandel voting yes, Mr. Chiang absent, the Board ordered that the appeal be deferred for 90 days for possible resolution between the appellant and the Franchise Tax Board.

Fremont General Corporation, 27969

1982, $526,796.00 Assessment

1983, $517,441.00 Assessment

1984, $253,482.00 Assessment

1985, $648,463.00 Assessment

Action: The Board took no action.

James & Jeannette Radney, 99A-0025; 89002465520
1992, $28,411.00 Assessment

For Appellant: No Appearance
For Franchise Tax Board: Sherman Eatmon, Tax Counsel

Action: The Board took no action.

Barry & Esther Weiss, 49615

1991, $53,233.00 Assessment

1994, $ 2,438.00 Assessment

Morris & Bessie Weiss, 49618

1991, $449,413.00 Assessment

1993, $ 8,293.00 Assessment

1994, $ 16,990.00 Assessment

For Appellant: No Appearance
For Franchise Tax Board: Ann Hoover, Tax Counsel

Action: The Board took no action.

Erwin Rautenberg, 33153
1994, $393,462.00 Assessment

For Appellant: Williard D. Horwich, Attorney
Erwin Rautenberg
For Franchise Tax Board: Mark McEvilly, Tax Counsel

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

Issues: Whether appellant has shown that respondent was in error when it determined that the monies appellant received from his solely owned S corporation were not excludable from income as compensatory damages.

Whether the proposed assessment was issued by respondent within the applicable statute of limitations.

Appellant's Exhibit: Supplemental Authorities Submitted by Appellant

(Exhibit 12.7)

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

Barry & Wendy Breslow, 31449
1994, $86,779.00 Assessment

For Appellant: No Appearance
For Franchise Tax Board: Kent Summers, Tax Counsel

Action: The Board took no action.

Darwin Dennis Tesch, 98A-1328, 89002460760
1996, $3,750.00 Assessment, $937.50 Penalty, Delinquent Filing

$937.50 Penalty, Demand

For Appellant: Appearance Waived
For Franchise Tax Board: Suzanne Small, Tax Counsel

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

Issues: Whether appellant is subject to California's income tax laws.

Whether respondent properly determined appellant's tax liability.

Whether respondent properly imposed penalties and a cost recovery fee.

Whether appellant has maintained a frivolous or groundless position before the Board.

Appellant's Exhibit: Letter dated 11/29/00 requesting matter be decided on the written record. (Exhibit 12.8)

Action: Upon motion of Mr. Klehs, seconded by Mr. Parrish and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs and Ms. Mandel voting yes, Mr. Chiang absent, the Board ordered that the action of the Franchise Tax Board be sustained and imposed a $750 frivolous appeal penalty.

Servpro Industries, Inc., 98A-1059; 89002459080

1988, $17,176.00 Assessment

1989, $17,189.00 Assessment

1990, $24,794.00 Assessment

1991, $20,568.00 Assessment

1992, $15,351.00 Assessment

For Appellant: Barry Weissman, Director
For Franchise Tax Board: Karl Grossenbacher, Tax Counsel

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

Issue: Whether appellant (a franchisor) should apportion business income received in installment payments and recognized for income tax purposes pursuant to the installment sales method under Internal Revenue Code (IRC) Section 453, using the apportionment factors from the year the installment payment was received, or from the year the installment (franchise) agreement was executed.

Mr. Chiang entered the Boardroom.

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

S. James & Effie Cardiges, 40701

1987, $51,194.00 Assessment, $38,395.50 Penalty

1989, $ 9,361.00 Assessment, $ 7,021.00 Penalty

1990, $23,337.00 Assessment, $16,335.00 Penalty

1991, $11,011.00 Assessment, $ 8,258.00 Penalty

For Appellant: Stanley James Cardiges
For Franchise Tax Board: A. Kent Summers, Tax Counsel

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

Issues: Whether appellant reported all illegal income received in the years at issue.

Whether appellant is liable for fraud penalties for the years at issue.

Appellant's Exhibit: Supplement Brief & Statements, (Exhibit 12.9)

Action: Upon motion of Mr. Klehs, 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.

Bonnie Fruth, 56615

1998, $1,069.00 Assessment

For Appellant: No Appearance
For Franchise Tax Board: Jozell Brunett, Counsel

Contribution: Disclosures pursuant to Government Code Section 15626: No disclosure form filed.

Issue: Whether appellant's daughter, who was legally married at the end of 1998, and who filed a joint return with her husband, can be the qualifying individual to allow appellant to use head of household filing status for 1998.

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

FINAL ACTION ON APPEALS HEARD - DECEMBER 1, 2000

Upon motion of Mr. Andal, seconded by Mr. Klehs and unanimously carried, Mr. Andal, Mr. Parrish, Mr. Klehs and Ms. Mandel voting yes, Mr. Chiang not participating, the Board ordered that the appeal of Gopi R. Jindal, 56627, be denied.

Upon motion of Ms. Mandel, seconded by Mr. Parrish and duly carried, Mr. Andal, Mr. Parrish and Ms. Mandel voting yes, Mr. Klehs voting no, Mr. Chiang not participating, the Board ordered that the appeal of Continental Culture Specialists, Inc., 15460, be granted on the first income year on appeal; otherwise the action of the Franchise Tax Board be sustained.

Upon motion of Mr. Klehs, seconded by Ms. Mandel and unanimously carried, Mr. Parrish, Mr. Klehs and Ms. Mandel voting yes, Mr. Andal and Mr. Chiang abstaining, the Board ordered that the appeal of Erwin Rautenberg, 33153, be denied.

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 abstaining, the Board ordered that the appeal of S. James & Effie Cardiges, 4070, be denied.

The Board adjourned at 1:00 p.m.

The foregoing minutes are adopted by the Board on March 29, 2001.