1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 FEBRUARY 3, 2009 10 11 SALES AND USE TAX APPEAL HEARING 12 APPEAL OF 13 RAYMOND DAVID BOYDA 14 NO. 349462 (CH) 15 AGAINST PROPOSED ASSESSMENT OF 16 SALES AND USE TAX 17 18 19 20 21 22 23 24 25 Reported by: Juli Price Jackson 26 CSR No. 5214 27 28 1 1 2 P R E S E N T 3 For the Board Betty Yee of Equalization: Chair 4 Judy Chu 5 Vice-Chair 6 Bill Leonard Member 7 Michelle Steel 8 Member 9 Marcy Jo Mandel Appearing for John 10 Chiang, State Controller (per Government Code 11 Section 7.9) 12 Diane G. Olson, 13 Chief Board Proceedings 14 Division 15 For Board of He Kim 16 Equalization Staff: Staff Counsel 17 18 For Department: Robert Tucker Tax Counsel 19 20 Randy Ferris Supervising Tax Counsel 21 22 Kevin Hanks Chief, Headquarters 23 Operations Division 24 For Appellant: Raymond David Boyda 25 26 ---oOo--- 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 FEBRUARY 3, 2009 4 ---oOo--- 5 MS. OLSON: For today's meeting we have two 6 sales and use tax oral hearings. Board Proceedings has 7 received contribution disclosure for this morning's 8 hearings from the parties, agents and participants. 9 All forms were properly completed and signed. 10 No disqualifying contributions were disclosed. All 11 parties, agents and participates are on the alpha 12 listing provided to your office. 13 Our first oral hearing is Raymond David Boyda. 14 MS. YEE: Okay. 15 MS. OLSON: Legal Appeals staff member will 16 introduce the case, stating the issues for the hearing. 17 Each person sitting at the table will then be 18 asked to introduce themselves and, if necessary, their 19 affiliation with taxpayer for the record. 20 Ten minutes is allocated for the taxpayer's 21 opening presentation, followed by ten minutes for the 22 Department's presentation and five minutes is allocated 23 to the taxpayer for rebuttal. 24 MS. YEE: Thank you very much. 25 Appeals? 26 MS. KIM: Good morning. 27 Good morning, Madam Chair, Board Members, there 28 are four -- my name is He Kim, for the -- representing 3 1 the Appeals Division today. 2 There are four unresolved issues in this 3 petition of Raymond David Boyda. 4 The first is whether Petitioner is liable as a 5 responsible person for the unpaid liabilities of Digital 6 Universe, Incorporated while it was suspended. 7 Second is whether the determination issued to 8 Petitioner was timely for periods assessed. 9 The third is whether Petitioner's liability was 10 discharged through his personal bankruptcy. 11 And the fourth is whether Petitioner should be 12 relieved of the penalties that were assessed against 13 Digital. 14 MS. YEE: Thank you. 15 Good morning. 16 Mr. Boyda, please introduce yourself formally 17 for the record. 18 You have ten minutes for your opening 19 presentation. 20 MR. BOYDA: My name is Raymond Boyda. 21 MS. YEE: Okay. 22 MR. BOYDA: This has been going on for a long 23 time, it started back in 2000. 24 I presented you with one item there. And it 25 was a letter of intent by a bank to supply me with a 26 loan for my business and it was dated April 2000. 27 The reason I supplied it, to give you some 28 context, I was having -- the business was having 4 1 financial difficulties in that year. 2 I wrote a business plan, submitted it to this 3 bank and received this letter of intent to get a loan. 4 During this time period I was having problems 5 paying the taxes. When I had contacted the Board of 6 Equalization and during that time, I was in contact with 7 them letting them know my situation. The day -- on the 8 very last page you'll also see an unsigned letter of 9 agreement from the State guaranteeing. 10 The day I was supposed to sign that, the day I 11 was supposed to be funded, the employee who was handling 12 my account, Helen Weaver, called the bank while I was in 13 the meeting and spoke to my loan officer in the middle 14 of this meeting where I was supposed to get this loan. 15 She basically told him she was going to close down my 16 business. 17 At that point, the bank withdrew its offer for 18 the loan. And this preceded all these series of events 19 leading up to today. And I just -- I wanted to 20 introduce this as a starting point for everything, so 21 everybody knows. 22 In September of 2001, September 11th, actually, 23 2001, the same agent who had called and got my loan 24 basically disapproved had my store padlocked. I was 25 stunned because I'd been working with them. 26 And in the course of the next four days I had 27 to come up with $27,000 in back taxes. I borrowed from 28 friends, relatives, everybody, and came up with the 5 1 money and paid the taxes, reopened my store on the 15th 2 of September. 3 This brings us to item 1, personal liability. 4 And starting off with the Secretary of State suspending 5 my corporate status as of February 1st, 2001. I had 6 paid all my taxes in September. I was never notified by 7 the Secretary of State that my corporate status had been 8 suspended. The Franchise Tax Board never notified me 9 that they had requested this of the Secretary of State. 10 I had just sent in my yearly renewal for my corporate 11 status. 12 So, when I am reading through here and it's 13 saying it was suspended and -- that it's not considered 14 relevant by the Department that I -- that it was -- what 15 did they say? 16 "Need not establish that the Petitioner had 17 knowledge that Digital was suspended or the 18 propriety of the corporate suspension." 19 I'm acting in good faith. I pay my taxes and, 20 for whatever reason, the Secretary of State is requested 21 to suspend my license by the Franchise Tax Board. 22 Seems a bit inappropriate and relevant. 23 As far as the personal liability and the 24 definition of closed corporations and what it is and is 25 not, my interpretation since I am not a legal -- lawyer, 26 there has to be three criteria that's missed -- issued 27 shares not to be allocated to on more than 35 people; 28 personally file the taxes; and show personal financial 6 1 gain from transactions in the store. 2 There were 35 people, I was the only person in 3 the corporation. And I had an accountant file the 4 taxes, although I signed them, so, I assumed that would 5 make me personally file them. 6 But the third one, personal financial gain, 7 that is not applicable. I did not receive any 8 compensation from the store after September 11th, 2001. 9 I simply could not afford to pay myself anything. I did 10 not take any money from the store. 11 So, as far as personal liability, I think 12 No. 3 -- there is no financial gain. 13 Also my company was formed as an S corporation. 14 Under the California Code of Corporations, there's a 15 document Section 200-201 that states what a closed 16 corporation is. All of this personal liability is based 17 on one fact, that my company was a closed corporation. 18 The California Code clearly states in its own 19 words the statutory concept of close corporation is 20 often confused with two other concepts, having some 21 elements in common. 22 The three differing concepts are a statutory 23 close corporation, issuance of shares under a Notice of 24 Filing Procedure with the Commissioner of Corporations, 25 and an S corporation election pursuant to the Internal 26 Revenue Code. 27 It goes on to say, 28 "Adding to the confusion, the term close 7 1 corporation, closed corporation or closely held 2 corporation, are often used in a non-technical 3 sense simply to describe a corporation having 4 relatively small shareholders." 5 It goes on to say is that it -- it is not a 6 condition to use the notice filing procedure or the 7 making of an S corporation election that the Articles of 8 Incorporation state that the corporation is a close 9 corporation or limit the number of shareholders of 10 record. Experienced corporate counsel advises that the 11 appropriate use of the statutory close corporation, even 12 among corporations having 35 or fewer shareholders, is 13 infrequent. 14 Basically, what this -- I interpret this saying 15 is that there three elements here, they're separate, but 16 they're often confused. 17 The Department is clearly stating that my 18 corporation is a closely held corporation. The State of 19 California recognizes it as an S corporation. 20 As far as the statute, issue No. 2, the statute 21 of limitations, I have a D & R, determination and 22 recommendation, issued by the Department. I have a 23 supplemental D & R issued by the Department. And I have 24 before you a memorandum that is requesting the 25 supplemental D & R. 26 Reading through these documents, you will see a 27 great deal of conflict of opinion between the Department 28 itself. They are confusing -- and making conflicting 8 1 statements -- as far as my filing taxes and considering 2 the taxes corporate taxes and -- 3 MS. OLSON: Time has expired. 4 MR. BOYDA: -- personal liability. 5 MS. YEE: Mr. Boyda, let's go to the 6 Department, but we'll give you five minutes on rebuttal. 7 MR. BOYDA: Sure. 8 MS. YEE: Thank you. 9 Department? 10 MR. TUCKER: Thank you, Madam Chairwoman and 11 Members. My name is Robert Tucker on behalf of the 12 Legal Department. 13 And with me is Mr. Kevin Hanks of the Sales and 14 Use Tax Department. And next to Mr. Hanks is Randy 15 Ferris, also of the Legal Department. 16 The petition for redetermination should be 17 denied because Petitioner is a responsible person for 18 the tax liabilities that were incurred by the 19 corporation as a result of a suspension of the 20 corporation. 21 Here Petitioner was a responsible person 22 because the corporation collected sales tax 23 reimbursement. He was the president of the corporation 24 and the sole shareholder of the corporation. He also 25 managed the day-to-day operations and signed the tax 26 returns of the corporation. 27 Furthermore, the fourth element to which he was 28 referring, as far as benefit incurred, we have a 9 1 statement of financial affairs he filed at the time of 2 his bankruptcy. And in that Statement of Financial 3 Affairs it states he received salary from a wholly owned 4 corporation in the amount of $35,360 for 2003 and 5 $37,360 for the year 2004. That totals an amount 6 greater than the liability we have as a responsible 7 person. 8 The Notice of Determination was issued timely, 9 well within the eight-year period. It was not 10 discharged by bankruptcy. And Petitioner has not 11 presented a basis sufficient to warrant relief of the 12 penalties. 13 Accordingly, we request that the petition be 14 denied. 15 MS. YEE: Thank you very much. 16 Mr. Boyda, you have five minutes on rebuttal. 17 MR. BOYDA: As far as the salary, checks were 18 issued, yes. None were ever cashed. 19 The Statements of Financial were submitted just 20 as tax returns for the Internal Revenue Service. So, 21 when I say I received no compensation, that is correct. 22 Checks were issued, but none were ever cashed. 23 Signing taxes, yes, I did sign those. The 24 day-to-day operation, that would be also true, but I did 25 have store managers who also handled day-to-day 26 operations. So, and "President" that's a title. 27 And I'm just -- I just have not received the 28 compensation. I have not been employed since September 10 1 of 2004. I have no income. I actually had no income 2 since 2001. 3 As far as the amnesty and everything, the woman 4 I spoke with before Helen Weaver, she was the person in 5 charge of the amnesty. And I was basically told by her 6 it was -- I could submit the amnesty, but it really 7 wouldn't matter because she was the one who was going to 8 receive my paperwork. 9 I will end it, see if you have any questions. 10 MS. YEE: Very well, thank you, Mr. Boyda. 11 Questions or comments, Members? 12 Dr. Chu, then Ms. Mandel. 13 DR. CHU: Well, I heard -- I heard you say 14 earlier that you paid your taxes, but it appears that 15 you didn't pay the sales tax that was collected from the 16 customers. 17 Why didn't you pay the Board the sales tax that 18 was collected from the customers? 19 MR. BOYDA: During this time period, as I said, 20 there was -- going through great financial difficulties. 21 One of the other actions that Miss Weaver took was to 22 contact my suppliers. They refused to sell to me. I 23 had no credit with my suppliers. So, I had to pay 24 everything in cash and I had to pay retail. So, I 25 couldn't buy wholesale. 26 So, in effect, I was paying taxes as I 27 purchased the items. 28 I was attempting to make monthly payments to 11 1 keep going. I couldn't pay the entire amount in full. 2 I was seeking other financing, but I seemed to have been 3 blocked at every step in attempting to do this. 4 You know, during in time it was just incredibly 5 hard. So, I was attempting to act in good faith all 6 along. I stayed in touch weekly with Helen Weaver. 7 At one point during this whole affair she came 8 out to the store, my store, on a Saturday, dressed in 9 jeans and a blouse, stood out in front of my store -- 10 this was in March of 2003 -- and was handing out fliers 11 to my customers telling them that I was operating my 12 store illegally, that I was a criminal and interviewing 13 and taking down their license plate numbers. 14 When I asked her to -- why she was taking down 15 license plate numbers, she became very agitated and told 16 me I better go back in the store, otherwise she would 17 call the Sheriff's Department and have me arrested. 18 I made a complaint to the Sacramento Board of 19 Equalization about this. And I was subsequently -- I 20 had a hearing with Maurice Mercuri at the Oakland office 21 and his boss, the head of the Oakland office. At this 22 time we went over all my liabilities. We went over all 23 of my assets. We filled out all of the forms. I signed 24 all of the forms, the tax forms, that he required. And 25 we worked out a payment plan. 26 I went and I paid the reinstatement fee for my 27 sales tax license. And I continued to do business, with 28 their blessing. 12 1 Now, all of this has occurred and, you know, 2 I'm still trying to figure out what happened. 3 MS. YEE: Okay. Ms. Mandel? 4 MS. MANDEL: I have a question related to the 5 amnesty penalty. I have the supplemental D & R and it 6 quotes from -- I guess this was the written request for 7 relief that you filed. 8 And I just want to verify it and see if you 9 have anything to add about it. 10 It says that -- what you wrote was, 11 "During this time frame, I was dealing with BOE 12 agent Helen Weaver. After receiving the 13 amnesty information in the mail, I questioned 14 Ms. Weaver if that would offer an avenue of 15 relief for me. I was told that my file was her 16 case and any submission for amnesty would be 17 routed back to her. I never submitted any 18 returns to the amnesty program since I was 19 already dealing with Ms. Weaver." 20 Is that -- can you just sort of talk about that 21 a little bit? 22 MR. BOYDA: Yeah, if you -- 23 MS. MANDEL: I just want to -- 24 MR. BOYDA: -- if you put it into context with 25 her previous actions, she made it abundantly clear that 26 I could go ahead and submit this amnesty request to her, 27 but it was clearly going nowhere. 28 MS. MANDEL: And I -- I notice -- I don't know 13 1 if this is for Appeals or the Department -- that a 2 result of not having participated in amnesty is -- are 3 there -- there is the amnesty interest penalty, but I 4 thought that there was also some of the other penalties, 5 are they double penalties, or do we not have them in 6 this case? 7 Is it only the amnesty interest penalty that we 8 have? 9 MR. HANKS: Ms. Mandel, that's all that I see 10 here are amnesty interest, interest -- interest 11 penalties, that's correct. 12 MS. MANDEL: Okay. Then maybe -- can the -- 13 MR. LEONARD: What about the late payment. 14 MS. MANDEL: Well, I was trying to figure out 15 what other penalties might be related to not having 16 participated in amnesty. 17 MR. LEONARD: Oh, I get you. 18 MS. MANDEL: So, it's -- none of these 19 penalties get doubled by amnesty? 20 MR. HANKS: That's correct. 21 MS. MANDEL: Like negligence would get doubled 22 by amnesty, right? 23 MR. HANKS: Correct. 24 MS. MANDEL: But he doesn't have a negligence 25 penalty? 26 MR. HANKS: That's correct. 27 MR. LEONARD: Okay. 28 MS. MANDEL: Okay. Well, if -- did -- do you 14 1 remember if there was any discussion with Ms. Weaver 2 about the extra penalty that would come on if you did 3 not participate in amnesty? 4 MR. BOYDA: I didn't discuss that with her. 5 After the meeting with Mr. Mercuri and the head of the 6 Oakland office, she was removed from the case. This was 7 right around the amnesty time. 8 And a new case worker was assigned to me, 9 Brenda Summers. And there was also you a Melvin Chan. 10 And, so, no further discussion of the amnesty was 11 brought up. 12 MS. MANDEL: It's -- it's not -- I don't think 13 that amnesty interest penalty is a lot of money, but it 14 would have been -- it would have been relief of 15 something to come. 16 MR. BOYDA: As I recall, 6 to $8,000 in the 17 original. 18 MS. YEE: The amnesty penalty was about $600? 19 MR. HANKS: 600. 20 MS. YEE: Your total penalties were over -- 21 about $8500. 22 MS. MANDEL: Yeah, the other -- which was why I 23 was asking if the other penalties were part of the 24 amnesty issue. 25 Okay, thank you. 26 MS. YEE: Thank you. 27 Other questions or comments? Ms. Steel? 28 MS. STEEL: When did you find out that your 15 1 corporation had been suspended? 2 MR. BOYDA: When did I find out? 3 MS. STEEL: Yeah? 4 MR. BOYDA: When I received the word and after 5 the store had closed, it was 2004 when it was -- I 6 received a letter. 7 That's when I found out that the corporation 8 was suspended by the Secretary of State. I had known my 9 resale license had been suspended, but then reinstated. 10 MS. STEEL: Then -- 11 MR. BOYDA: When I had the meeting in 2003 with 12 Maurice Mercuri, he stated that my sales tax license -- 13 I paid the $50 and that would be reinstated. 14 No mention was ever made that I was suspended 15 by the Secretary of State. 16 MS. STEEL: Then you were filing corporate tax 17 returns for the -- for sales tax return for 2002, first 18 quarter, through 2003, first quarter, but you missed it 19 for 2003, second and third quarter. 20 Why is that? 21 MR. BOYDA: See, that's -- that's what's 22 unclear to me because that is exactly when I was in the 23 office in 2003, in the Oakland office, dealing with Mr. 24 Mercuri. 25 MS. STEEL: You are not sure that you filed it 26 or not? 27 MR. BOYDA: We did. We filed all the -- I had 28 a table full of forms. We went through every form that 16 1 had not -- every tax period that had not been filed and 2 we filed them all. 3 That's the only way that I could have had my 4 sales tax license reinstated. 5 MS. STEEL: Okay. According to the record that 6 he never filed those two -- 7 MS. YEE: Yeah. 8 MS. STEEL: -- quarters, right? 9 MS. YEE: Department, can you clarify that? 10 MR. HANKS: Ms. Steel, yes, it does look like 11 his permit was revoked April of 2003 and then 12 thereafter -- 13 MS. STEEL: It was suspended. 14 MR. HANKS: -- revoked, it was actually revoked 15 at that time, but then reinstated. 16 And then, afterwards, we have a formal 17 close-out that's dated September of 2004 and again the 18 reason for that, that close-out was because of a revoked 19 permit. 20 MS. STEEL: Let me come back to the Department. 21 But you said you paid all of the sales taxes to 22 the suppliers when you bought it because you didn't have 23 any credit. 24 Do you have any documents for that? 25 MR. BOYDA: When the store -- when the store 26 closed, it's another side that's interesting -- the 27 property management came in because there was, you know, 28 still continuing financial difficulties and the 17 1 financial -- the property manager came in with a 2 sheriff, closed the store down and he -- 3 MS. STEEL: I just want to have yes or no 4 answer. 5 MR. BOYDA: No. 6 MS. STEEL: Did you -- you don't have any 7 documents? 8 MR. BOYDA: No. 9 MS. STEEL: Okay. For the Department, what 10 kind of procedure that usually Department takes after 11 their license has been suspended or their permit's been 12 suspended or revoked? 13 Why we took so long to find out that he filed, 14 you know, tax returns all the way through and we didn't 15 find out until 2004 -- or 2006, I believe, that we send 16 the letter out to the taxpayer. 17 Why it took so long? And what was -- what's 18 the procedure how we find out that, you know, their 19 license been suspended or not? 20 MR. HANKS: All right, Ms. Steel, the taxpayer 21 would have been in communication with the Board. 22 In this case, the permit was revoked because of 23 nonpayment of amounts that were self-reported to the 24 Board. Petitioner was in payment status with the Board 25 of Equalization. 26 However, ultimately, he did not fulfill those 27 patient obligations. And, for that reason, his account 28 was revoked. 18 1 Now Petitioner was -- was apparently reinstated 2 afterwards, but then again evoked because of nonfiling 3 and nonpayment of returns for the returns that are in 4 question this morning. 5 But the typical procedure would be that our 6 compliance staff would be in communication with the 7 taxpayer, communicate to them their responsibilities 8 under the law, how they needed to the report, the 9 periods in which he needed to report, and moreover, the 10 periods in which they were delinquent. 11 So, those types of communications were ongoing 12 with the taxpayer during this time. 13 MS. STEEL: So, there is a communication 14 because it seems like he filed -- he filed it on 2002, 15 first quarter 2, all the way to 2003 first quarter, but 16 he never paid taxes during that time? 17 MR. HANKS: That's correct, that's correct for 18 these returns -- 19 MS. STEEL: So, we were communicating with 20 him -- 21 MR. HANKS: Correct. 22 MS. STEEL: -- at that point? 23 MR. HANKS: We were, we were. 24 What he did was he filed returns for those 25 periods, but he filed what we call NR returns, 26 nonremittance returns. 27 So, he actually filed and declared what his tax 28 responsibility was for each of those quarters, but he 19 1 didn't include payment with those filings -- with those 2 quarterly filings. 3 MS. STEEL: So, at that point, we knew that his 4 corporate status has been suspended? 5 MR. TUCKER: Not initially, I would imagine. 6 I'm sure it took -- I'm trying to find the date that the 7 Board was notified. 8 He was suspended by the Secretary of State on 9 February 1st, 2001 for failure to pay Franchise Tax 10 Board, his taxes there. 11 I'm not sure what month the Board was notified 12 of that suspension. 13 MS. STEEL: Seems we notified the taxpayer on 14 2005, March. 15 MR. HANKS: Also, Ms. Steel, I need to note 16 that Petitioner was filing these nonremittance returns 17 for the periods in question that we're discussing this 18 morning. 19 And it was only after the Department could not 20 obtain collection through the taxpayer and through his 21 incorporated entity that we issued the dual 22 determination against the Petitioner as an individual. 23 So, that Notice of Determination is actually 24 what was issued in 2006. So, that's the personal 25 responsibility that we're talking about today rather 26 than the corporate responsibility that's related to the 27 business entity itself. 28 MS. STEEL: Okay, thank you. 20 1 And then let's go back to look at the statute 2 of limitations for three years and eight years. 3 Seems like one of the -- our auditor or -- went 4 out and then they agreed that statute has to be three 5 years. But Appeals Division -- Mr. David Levine here -- 6 he said it's more of eight years because -- what's the 7 reason here? 8 Why we are not communicating each other that we 9 keep changing, you know, the statute there? 10 Can you make it very clear about that? 11 MS. KIM: Ms. Steel, I think was just -- this 12 is generally a new issue that we were trying to decide 13 in terms of 6829 liability initially. 14 And once was that secured, there was some 15 thought that the same statute of limitations reasoning 16 would apply to suspended corporation liability under 17 1702.6 of the regulations. 18 But as you can see, you know, upon further 19 consideration in terms of due process concerns and 20 similar things, that we did end up finding that in terms 21 of due process and logical reasoning and in terms of how 22 we notice taxpayers of these liabilities that it had to 23 be the eight year statute that applied. 24 MR. FERRIS: Right, because -- 25 MS. STEEL: Under termination, it's eight 26 years, but under suspension it's not really clear about 27 that under the statute, right? 28 MS. KIM: Right, the regulation is not clear, 21 1 it does not set forth the statute of limitations. 2 MS. STEEL: So, you're not really sure it's 3 years or three years at this point because it's under 4 suspension and was not under termination? 5 MR. FERRIS: Yes, Randy Ferris, in this 6 particular case I think Appeals, you know, could see it 7 both ways. 8 In fact, the initial D & R went one way and the 9 supplemental went the other. And they ultimately went 10 with the eight year because they realized that if they 11 didn't, this particular taxpayer wouldn't even have an 12 opportunity for a hearing because these were 13 nonremittance returns that were filed. 14 So, these were self-assessed liabilities by the 15 corporation. And, so, if we went with that return, 16 counting for him, in his place, then he would have just 17 received a billing and he would have no petition rights. 18 He would have to -- 19 MS. STEEL: Let me -- 20 MR. FERRIS: -- his only petition right would 21 be to pay and file a claim for refund. 22 And, so, Appeals was trying to give him a 23 hearing is why they went with eight. 24 MS. STEEL: -- but if statute is three years, 25 that, you know, all 2002 is going be waived because we 26 can not go after the taxpayer, right? 27 MR. FERRIS: Well, in -- I'm just trying to 28 explain my understanding of the supplemental D & R. 22 1 What the supplemental D & R is saying is if -- 2 but for an eight year statute of limitations, this 3 particular taxpayer would not have any appeals rights. 4 They would have to pay and then file a claim for refund. 5 And, so, that was -- they were -- they reached 6 that conclusion to benefit this taxpayer, not to -- not 7 to hurt them. 8 MS. STEEL: What I am saying is -- 9 MR. LEONARD: Well -- 10 MS. STEEL: -- my question is, if the statute 11 is for three years for this case, then for 2002 tax 12 returns that he did without payment, that's going to be 13 all waived? 14 That's what I'm asking. 15 MR. TUCKER: Ms. Steel, you are asking if the 16 three-year statute were applied -- 17 MS. STEEL: Right? 18 MR. TUCKER: -- then would that be waived? 19 The answer is yes. 20 MR. FERRIS: Yes. 21 MS. STEEL: Thank you. 22 MS. YEE: Thank you. 23 Ms. Mandel? 24 MS. MANDEL: And I suppose, Mr. Ferris, you 25 might say then that if that were the case, we wouldn't 26 be here at all because he wouldn't have been allowed to 27 raise that until he had paid the amounts and filed a 28 refund claim? 23 1 MR. TUCKER: Correct. 2 MR. FERRIS: Correct. 3 MS. MANDEL: And -- 4 MR. LEONARD: But he wouldn't have been billed 5 as much. 6 MS. MANDEL: -- yeah. I'm just trying to 7 connect all their little pieces. 8 But in the McCune opinion, which had to do with 9 a personal liability under a different statute -- 10 MR. FERRIS: Correct. 11 MS. MANDEL: -- the same argument about those 12 should be treated as my returns and I should have a 13 three-year statute instead of an eight-year statute and 14 the McCune opinion rejects that, for a variety of 15 reasons and I don't -- I don't know what the timing of 16 that was or why it wasn't -- didn't come up, maybe 17 because it was a responsible person instead of a 18 suspended -- 19 MR. TUCKER: By analogy, though, we used the 20 exact same logic and exact same reasoning for the 21 suspended person corporation -- or suspended corporation 22 liability. 23 MS. MANDEL: And on the corporate law side, my 24 recollection was that the -- a suspended corporation, 25 while its sort of legal rights under corporate law are 26 in a suspended status, that, for example, a suspended 27 corporation, to the extent it enters into a contract 28 with someone, that the contract is voidable at the other 24 1 party's option -- 2 MR. TUCKER: Correct. 3 MS. MANDEL: -- but that it might still -- you 4 know, the other party might still allow the contract to 5 go on. 6 It gets into questions of what the suspended 7 corporation -- whether they are able to enforce a 8 contract or not because they don't have the right to go 9 into court until they fix their suspension. 10 So, I kind of had some questions about how the 11 original D & R addressed the issue on the statute of 12 limitations. 13 But I did -- I was curious that the McCune 14 opinion sounded similar. 15 Does it sound -- you're all nodding yes? 16 MR. TUCKER: Yeah. 17 MS. MANDEL: It sounded similar to you all? 18 MR. TUCKER: I agree. 19 MR. FERRIS: Yeah, and in this case the 20 eight-year statute is probably -- the McCune opinion is 21 reasonable. And in a suspended situation it's even -- 22 that legal position is even more reasonable and that the 23 theory is that the other person -- this person is 24 actually -- is making the sales, from our point of view. 25 And if they're not filing a return in their own 26 name as the person making the sales, that's going to 27 subject them to an eight-year statute of limitations. 28 So, it -- it's by analogy and it's even on 25 1 stronger ground with respect to this legal theory. 2 MS. MANDEL: Okay. 3 MS. YEE: Other questions or comments? 4 Let me pose a question to the Department. I am 5 troubled in this case, certainly, Mr. Boyda, by your 6 lack of knowledge that the corporation was suspended. 7 I guess the question to the Department is what 8 is -- what occurs during the regular course of our 9 business with regard to how we get notified of a 10 business being suspended? It seemed like there was such 11 a lapse of time here that -- 12 MR. LEONARD: Right. 13 MS. YEE: -- is there any formal notification 14 other than the taxpayer coming forward? 15 MR. HANKS: Ms. Yee, I think what happened in 16 this case was the Department attempted collection from 17 the corporate entity and that occurred for many, many 18 years. 19 It was -- it was only after all of the 20 collection actions had been exhausted, really, where I 21 think the Department was looking to -- to bill this 22 differently than -- and collect on it differently than 23 they had in the past. 24 Certainly this was one of the options available 25 to the Department. So, I think it was at that time, in 26 2006 and immediately before, that we looked to see 27 whether or not there was a corporate suspension that 28 would allows us to issue the dual determination. 26 1 MS. YEE: Okay. I guess to the extent the 2 suspension was tied to the lack of payment of income 3 taxes, was that -- 4 MR. HANKS: Correct, yes. 5 MS. YEE: -- okay, I just would have thought 6 that there would have been communication loop back to us 7 in some fashion, but -- 8 MR. HANKS: No. 9 MS. YEE: -- not there? 10 Okay. Secondly, with respect to the timing of 11 the bankruptcy and the -- when the liability became 12 final, can you talk about the timing a little bit? 13 Mr. Boyda raised the issue of bankruptcy and I 14 just wanted to understand the chronology. 15 MR. TUCKER: My understanding is, pursuant to 16 the file, that he filed for personal bankruptcy in March 17 2005. The bankruptcy was finalized in October 2005. 18 And the determination was issued on March 14th, 19 2006. 20 MS. YEE: Okay, thank you. 21 Other questions or comments, Members? 22 Okay, hearing none, is there a motion? 23 MS. MANDEL: Take it under submission. 24 MS. YEE: Motion by Ms. Mandel -- 25 DR. CHU: Second. 26 MS. YEE: -- to take the matter under 27 submission. 28 Second by Dr. Chu. 27 1 Without objection, such will be the order. 2 Thank you, Mr. Boyda. We will discuss your 3 matter later today and send you written notice of our 4 decision. 5 MR. BOYDA: Thank you. 6 MS. YEE: Thank you for coming. 7 MR. BOYDA: Just for a bit of clarification 8 about the payments? 9 MS. YEE: Yes. 10 MR. BOYDA: Everyone's saying I wasn't paying 11 taxes. 12 I had been making monthly payments. So, when 13 they say I wasn't paying, I wasn't paying the full 14 amount, but it was a deal that I had worked out with 15 Mr. Mercuri. 16 MS. YEE: You had a payment plan, right. 17 MR. BOYDA: Just so you can understand that. 18 MS. YEE: Yes, thank you. 19 ---o0o--- 20 21 22 23 24 25 26 27 28 28 1 REPORTER'SCERTIFICATE. 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, JULI PRICE JACKSON Hearing Reporter for the 8 California State Board of Equalization certify that on 9 FEBRUARY 3, 2009 I recorded verbatim, in shorthand, to 10 the best of my ability, the proceedings in the 11 above-entitled hearing; that I transcribed the shorthand 12 writing into typewriting; and that the preceding pages 1 13 through 28 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: April 14, 2009 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 29