1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 AUGUST 31, 2009 9 10 ITEM H2 FRANCHISE AND INCOME TAX MATTERS 11 ADJUDICATORY 12 13 14 15 16 17 18 19 20 Reported by: Juli Price Jackson 21 No. CSR 5214 22 23 24 25 26 27 28 1 1 2 P R E S E N T 3 4 For the Board Betty T. Yee of Equalization: Chair 5 6 Steve Shea Acting Member 7 8 Bill Leonard Member 9 Michelle Steel 10 Member 11 Marcy Jo Mandel Appearing for John 12 Chiang, State Controller (per Government Code 13 Section 7.9) 14 Diane G. Olson Chief, Board 15 Proceedings Division 16 17 18 ---oOo--- 19 20 21 22 23 24 25 26 27 28 2 1 INDEX OF SPEAKERS 2 ---o0o--- 3 Name Page 4 Jeff Davine 09 5 6 7 INDEX OF ITEMS 8 ---o0o--- 9 H2.1 Leah Lukrich 04 10 H2.2 Matt Ward 09 11 H2.3 NASSCO Holdings, Inc. 16 12 H2.4 Robin Nottingham Reid 28 13 H2.2 Matt Ward 30 14 15 ---o0o--- 16 17 18 19 20 21 22 23 24 25 26 27 28 3 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 AUGUST 31, 2009 4 ---oOo--- 5 MS. OLSON: Our next item is H2, Franchise and 6 Income Tax Matters Adjudicatory. 7 MS. YEE: Okay. Let's take these up one at a 8 time. 9 ---o0o--- 10 H2.1 LEAH LUKRICH 11 NO. 391844 12 ---o0o--- 13 Let me just note we do have a speaker -- a 14 couple of speakers on sub item $2 million Matt Ward, if 15 you'll come forward, we'll get to that one in just a 16 moment. 17 First sub item is Leah Lukrich. Is there a 18 motion? 19 MS. MANDEL: Sustain the Franchise Tax Board. 20 MS. YEE: Okay, motion by Ms. Mandel to sustain 21 the Franchise Tax Board. Is there a second? 22 I will second that motion. 23 MR. LEONARD: Madam Chair? 24 MS. YEE: Mr. Leonard? 25 MR. LEONARD: I forget our history on this one, 26 did this ever have a hearing? 27 MS. MANDEL: This was a nonappearance matter. 28 MR. LEONARD: Nonappearance. 4 1 MS. MANDEL: It was a nonappearance matter 2 that, actually, I had pulled from the -- I am confused 3 now, we have all kinds of people sitting in front of us. 4 MR. LEONARD: You pulled it, I read it. 5 MS. MANDEL: Are these people for something 6 else? 7 MS. YEE: They're for the next item. 8 MS. KELLY: Sorry, they're for the next sub 9 item coming up. 10 MS. MANDEL: I looked up got confused. 11 Yeah, I had pulled it. It was on a 12 nonappearance consent and I had pulled it. 13 And then I believe that Appeals asked for 14 further briefing and I'm just not persuaded that there 15 should be any interest abatement. 16 MR. LEONARD: And when you pulled it and I read 17 that, I came to the same conclusion. 18 Now we're just going to -- 19 MS. MANDEL: Well, I -- yeah, I'm saying no 20 interest abatement. 21 I don't see where there's sort of substantive 22 factual information for the Board to choose to say how 23 long it should take FTB to -- and how FTB should assign 24 and handle its cases. 25 This one was only like seven and a half months, 26 yeah, once it was actually assigned to a person, it was 27 handled expeditiously. But, you know. 28 MR. LEONARD: It was the lack of assignment 5 1 that I read in the record that got me for a very simple 2 protest for -- 3 MS. MANDEL: Except there is -- yeah. 4 MR. LEONARD: -- relatively low dollar amount. 5 MS. MANDEL: There's a -- they -- as they said 6 in their brief, they get a tremendous amount of mail in 7 that unit. 8 And basically what you are saying is, you know, 9 decide -- you don't know whether the -- I mean the 10 standard for a docketed protest at FTB they hope, on the 11 most simple docketed protest, which admittedly, I think 12 are different ones than this type of protest, would be to 13 handle them within a year. 14 And, so, to say you should have assigned it -- 15 maybe because of the way we may assign things here, where 16 maybe it goes in and gets assigned to hearing officers, 17 you know, right away -- in two months or a month -- you 18 know, we may have a different system than they have. So, 19 you don't -- you don't -- we don't necessarily know that 20 had it been assigned to somebody that it then would -- 21 you know, have had to have been assigned within two 22 months or three months, that it -- that that person would 23 have been able to work it right away. 24 It may be how they're managing their workload. 25 You know, I -- 26 MR. LEONARD: I totally agree. I just don't 27 like the situation where the Department profits by delay. 28 Even if they're overwhelmed with work, they 6 1 know they can make more money by not getting to it. It's 2 a mindset. It should be opposite. 3 There should be -- 4 MS. MANDEL: Well, and delay -- delay and in of 5 itself is not grounds for interest abatement. It has to 6 be unreasonable, so -- 7 MR. LEONARD: I understand. 8 MS. MANDEL: -- it just didn't feel that this 9 rose -- 10 MR. LEONARD: The disincentive to manage 11 properly is built in and at the interest rates we're 12 charging, it's large. 13 MS. YEE: Okay. 14 MR. LEONARD: I thought you were right to pull 15 it. 16 MS. MANDEL: Okay. 17 MS. YEE: Okay, motion by Ms. Mandel, second by 18 Yee. 19 Please call the roll. 20 MS. OLSON: Madam Chair? 21 MS. YEE: Aye. 22 MS. OLSON: Mr. Leonard? 23 MR. LEONARD: No. 24 MS. OLSON: Ms. Steel? 25 MS. STEEL: No. 26 MS. OLSON: Mr. Shea? 27 MR. SHEA: Aye. 28 MS. OLSON: Ms. Mandel? 7 1 MS. MANDEL: Aye. 2 MS. OLSON: Motion carries. 3 ---o0o--- 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8 1 H2.2 MATT WARD 2 NO. 431775 3 ---o0o--- 4 MS. YEE: Okay, next item is Matt Ward. I note 5 we have public speakers signed up for this -- Mr. Jeff 6 Davine, attorney in this matter, and Jeanne Sibert with 7 the Franchise Tax Board. 8 We'll give you two minutes each. If you will 9 introduce yourself for the record? 10 ---o0o--- 11 JEFF DAVINE 12 ---o0o--- 13 MR. DAVINE: Good morning, my name is Jeff 14 Davine. 15 I am the attorney for the Appellant, Matt Ward. 16 MS. YEE: Okay. Please proceed. 17 MR. DAVINE: Thank you for the time. 18 The Board -- the Franchise Tax Board claims 19 that two rollovers, one in 1999 and one in 2000, made 20 from one individual retirement account belonging to the 21 Appellant to another individual retirement account 22 belonging to the Appellant were not completed properly. 23 As a result, the Franchise Tax Board asserts that the 24 rollovers should be treated as taxable distributions. 25 Let's assume that the Franchise Tax Board is 26 correct, in other words, that neither IRA rollover was, 27 in fact, done properly and that the Appellant should be 28 deemed to have received two taxable distributions from 9 1 his IRA, one in tax year 1999 in the sum of $1,299,194 2 and the one in tax year 2000 for $969,904. 3 If we assume that the Franchise Tax Board is, 4 in fact, correct, the Appellant should be entitled to 5 claim a loss in 2000 equal to the amount of these two 6 deemed distributions. This is because the asset in which 7 the proceeds from these two deemed distributions were 8 invested, stock of a corporation known as Direct Web 9 Incorporated became worthless prior to the end of 2000. 10 The Franchise Tax Board has asserted that the 11 Appellant has already claimed a deduction for the 12 worthlessness of the Direct Web stock purchased with the 13 deemed IRA distributions. This is incorrect. 14 In tax year 2000 the Appellant claimed a 15 deduction in the amount of $3,100,002, attributable to 16 the investment of his personal -- that is non IRA 17 funds -- in Direct Web. This deduction was allowed by 18 the Franchise Tax Board. The evidence presented by the 19 Appellant in two post hearing briefs that he has filed in 20 this case unequivocally show that it was not possible 21 that the $3,100,002 deduction claimed by the Appellant 22 could have attributable to either of the deemed 23 distributions from the IRA, therefore, the Appellant 24 could not have previously claimed a deduction for the 25 amounts that he invested in Direct Web from the deemed 26 distribution of IRA proceeds that became worthless in 27 2000. 28 In other words, the money trail for the amounts 10 1 previously deducted by the Appellant does not lead back 2 to the Appellant's IRAs. 3 MS. OLSON: Time has expired. 4 MS. YEE: Okay. I am sure we'll have 5 questions. Let me have you stop there. 6 Franchise Tax Board? 7 MS. SIBERT: Good morning, Madam Chairwoman and 8 Members of the Board. My name is Jeanne Sibert. And I'm 9 the attorney for this case representing the Franchise Tax 10 Board. 11 I am really here today to address any of the 12 questions you may have on this issue. So -- 13 MS. YEE: Okay. Let me ask you, Ms. Sibert, 14 there was a modification in terms of allowing a deduction 15 for, I believe the 2000 year, this relates to the loss 16 deduction? 17 MS. SIBERT: Yes, that was a -- that came into 18 the post hearing briefs. 19 It was, as I understood, a question as if the 20 Board were sustain our assessment, which was to include 21 the taxpayer's IRA distributions in his taxable income in 22 the respective years, 1999 and 2000, would he then be 23 entitled to a loss deduction connected to that. 24 One of the remaining issues that there has been 25 no documentation provided that shows that these IRA 26 distributions were then, in turn, used to purchase Direct 27 Web stock, which would then have been found worthless. 28 We also found for other monies that the 11 1 taxpayer invested in Direct Web, I believe independently 2 by purchasing stock and also through an LLC, that he was 3 entitled to a $3.1 million loss in 2000 when the Direct 4 Web investment became worthless. 5 And, so, it was our position in the post 6 hearing brief that he not had shown where the -- if he 7 had received the early distributions from his IRAs, as we 8 put forth, that we did not have any documentation about 9 where those monies were invested. 10 MS. YEE: Okay. So, the -- so, in terms of the 11 tax for 2000 it's limited to the distribution, early 12 distributions of the IRA and the remainder is -- 13 MS. SIBERT: Yeah, our original NPAs and NOAs 14 for those cases were to increase his taxable income in 15 1999 by the IRA distribution and then increase his 16 taxable income in 2000 by the IRA distribution and also 17 the early distribution penalty for both years. 18 MS. YEE: Okay. And then with respect to what 19 Mr. Davine is bringing forward today -- I am sorry, 20 Mr. Davine, can you comment on it? 21 MS. SIBERT: I think the confusion may have -- 22 looking back maybe how I presented things in my brief, 23 what I was trying to say was that we had already allowed 24 this $3.1 in loss, the $2 million loss was in 1999 and we 25 were able to see from the, you know, from the 26 documentation we have that the stock in Direct Web for 27 the 1999 loss was purchased in 1999. 28 And what I was trying to accomplish was to say 12 1 that his 1999 -- the $2 million, we don't know the source 2 of that amount, ultimately. And that, perhaps, there was 3 a possibility that the IRA distribution in 1999, the 4 1.3 million, may -- could it be the same amount of money 5 that was also the $2 million that was invested in the 6 Direct Web stock? 7 That there -- that question remains that 8 before -- if an additional loss is given, we would need 9 to see documentation to establish that the funds are 10 separate. 11 MS. YEE: Okay, all right. 12 MR. SHEA: Question? 13 MS. YEE: Mr. Shea? 14 MR. SHEA: I just wanted to ask -- my 15 understanding is Appeals has a different interpretation 16 with respect to the question of the worth of stock 17 deduction and I would like to ask them to verify that. 18 MS. YEE: Miss Kelly? 19 MS. KELLY: Okay. Well, Appeals looked at the 20 evidence, the statement made under penalty of perjury, 21 from the -- I think it's the Direct Web company lawyer 22 with respect to monies that were paid, with respect to 23 the -- what we appear to be agreeing possibly the failed 24 IRA for 960,000. It appears those amounts are separate. 25 And assuming the Board looks at that statement 26 as evidence that those monies were used to purchase 27 Direct Web, it sounds like that would be an additional 28 worthless stock deduction. 13 1 Is that correct? 2 MR. DAVINE: That's correct, yeah. 3 MS. KELLY: Okay. 4 MR. SHEA: So, I guess the basis for that then 5 is what weight we should give these declarations under 6 the penalty of perjury that, essentially, would answer 7 the evidence question that Ms. Sibert raised. 8 Is that a correct interpretation? 9 MS. KELLY: That's exactly right. 10 And, so, we would look at the relationship of 11 the person who's made the statement to the Appellant and 12 does not appear that there's a close relationship. 13 That might be one factor to consider. 14 MS. YEE: Okay. I apologize, I pronounced your 15 name wrong, Mr. Davine. 16 MR. DAVINE: I have been called you a lot 17 worse. 18 MS. YEE: Can you talk about the relationship 19 in terms of the declaration? 20 MR. DAVINE: Are we talking about the 21 declaration from Albert Keyack? 22 Yes. Okay, he was the -- I believe, the 23 Executive Vice President and General Counsel of Direct 24 Web. And, to my knowledge, there was no prior 25 relationship between my client and Mr. Keyack. I think 26 there was independent third parties and my client 27 happened to get involved with Direct Web. As a result, 28 he came to know Mr. Keyack, based upon the fact that he 14 1 was the General Counsel of Direct Web. 2 But there was no prior relationship between the 3 parties. 4 MS. YEE: Okay. Very well, thank you. 5 Other questions? 6 Okay, other comments? 7 Ms. Sibert? 8 MS. SIBERT: No. 9 MS. YEE: Okay, very well, thank you for coming 10 forward. 11 Let us put this matter over and we will discuss 12 it further later this afternoon. 13 MR. DAVINE: Thank you. 14 MS. YEE: And come book to make a decision and 15 informing you in writing of that. 16 MR. DAVINE: Thank you. 17 MS. SIBERT: Thank you. 18 ---o0o--- 19 20 21 22 23 24 25 26 27 28 15 1 H2.3 NASSCO HOLDINGS, INC. 2 NO. 317434 3 ---o0o--- 4 MS. YEE: Members, why don't we move on to sub 5 item 3, NASSCO Holdings, Incorporated? 6 This is a petition for rehearing. Is there a 7 motion? 8 MR. SHEA: I'll make a motion. The motion 9 would be to deny the petition for rehearing and approve 10 the drafting of a formal opinion. 11 MS. YEE: Okay. 12 MS. STEEL: Second. 13 MS. YEE: Motion by Mr. Shea to deny the 14 petition for rehearing, but to direct staff to draft the 15 formal opinion for this appeal, second by Ms. Steel. 16 Discussion? 17 MS. MANDEL: Objection. 18 MS. YEE: Objection by Ms. Mandel. 19 Do you wish to comment, Ms. Mandel? 20 MS. MANDEL: No formal opinion. 21 MS. YEE: Okay. 22 MS. MANDEL: Deny the rehearing, no formal 23 opinion. 24 MS. YEE: Okay. 25 MR. SHEA: Maybe I should just -- 26 MS. YEE: Mr. Shea, if you could reply? 27 MR. SHEA: -- my rationale for my motion, if 28 you all -- if you recall -- let's see, the Board had 16 1 voted 4-1 on February 29th, 2009 to grant the appeal, 2 finding the Appellant was entitled to the enterprise zone 3 credits and other credits to reduce its alternative 4 minimum tax for liabilities '94, '95, '99, 2000 and 2001. 5 The petition for rehearing contends that good 6 cause exists due to in error in law, surprise and newly 7 discovered evidence. But most of that claim pertains to 8 the assertion that the Respondent did not adequately 9 address the legislative history of this matter. 10 And reviewing this, it seems -- it seemed to me 11 and the staff and Board Member Chu, who was the Board 12 Member at the time from the Fourth District, that the 13 case was clearly primarily about legislative history due 14 to the lack of a clear definition of tax. And the 15 legislative history was really -- it wasn't ambiguous to 16 us. It was very clear concerning this matter that the 17 appeal should be granted on that basis. So, given that, 18 I don't see the basis for a rehearing on such -- on those 19 grounds. 20 But there does seem to be a need for 21 clarification as to the ruling, the scope of the ruling, 22 you know, I think from both sides. I think both the FTB 23 and the Appellant would like that. 24 It's an issue of continuing public interest and 25 the formal opinion would make a contribution to the law 26 by reviewing the legislative history of the statute and 27 clarifying the scope of the opinion, which I think would 28 help the taxpayers ascertain their filing positions in 17 1 the current year and future years and also provide the 2 basis for which FTB to uphold the ruling. 3 So, for those reasons I recommend that we deny 4 the petition and approve the formal opinion. 5 MS. YEE: Okay. I guess there's a formal 6 opinion still to be drafted, so -- but let me get back to 7 the motion a second. 8 Ms. Kelly, can you, perhaps, give us a sense of 9 whether the -- I guess under our rules we have kind of a 10 multi-prong test with respect to formal opinions. 11 MS. MANDEL: And it's permissive. 12 MS. YEE: And it's permissive, right. 13 MS. MANDEL: But not required. 14 MS. YEE: But to just kind of give us your 15 sense of whether those tests are met. 16 And then, secondly, if the Board were to 17 entertain a formal in this case, what would be -- how 18 broad would the scope be? 19 MS. KELLY: Okay. The rules for tax appeals, 20 the new rule regarding formals also lays out different 21 criteria that the Board may consider. 22 And, so, it's not a requirement that any of the 23 factors be considered. Those are just suggestions for 24 the factors that the Board may consider in choosing to 25 issue a formal. 26 And here there does seem to be two criteria 27 met, the -- from the briefing it appears that the parties 28 agree that there's a lot of public interest in this 18 1 particular issue and also that it would address the 2 legislative history kind of statute. 3 And, so, those two criteria there. It doesn't 4 mean that the Board's required to direct a formal, but 5 simply that those are criteria that support a formal. 6 As to the scope, the scope of the formal would 7 address the Board's determination made in February to 8 grant the appeal. So, the -- the scope of the formal 9 would be tailored to what that decision was, the facts of 10 the taxpayer. 11 MS. YEE: Okay. 12 Other questions? Mr. Leonard? 13 MR. LEONARD: Thank you, Madam Chair. 14 I would speak in favor of the motion. One, as 15 you pointed out, it's -- it's a motion to ask staff to 16 draft the opinion. So, we get another shot at looking at 17 it. 18 But I think there's a clear disagreement in the 19 application of law as related to the legislative history 20 that it's the only way that this Board can clarify that 21 is by formal opinion. 22 You know, we don't have control over 23 regulations. The legislature may choose to change or 24 clarify the law. Enterprise zones are here to stay. In 25 fact, I think there's legislation to expand them. So, 26 it's clearly a public interest and one that we should 27 address and deal with. 28 As I note that the petition for rehearing in a 19 1 very rare situation has come from the government, not the 2 taxpayer. So, there is -- there is a clear and 3 apparently ongoing disagreement on the reading of the law 4 and the application of it. 5 And I think our Board has an obligation, as 6 Mr. Shea pointed out, to explain to the Franchise Tax 7 Board and all affected taxpayers what our interpretation 8 of an application of that law is. 9 MS. YEE: Okay. 10 MR. LEONARD: I'd urge an aye vote. 11 MS. YEE: Mr. Shea, may I ask you, would you be 12 interested a bifurcating the two questions? 13 MS. MANDEL: It's just two motions? 14 MR. LEONARD: It's divisible. 15 MR. SHEA: Yeah, I suppose, yeah. 16 MS. YEE: Okay. If you wouldn't mind just 17 remaking the motion on the petition for rehearing at 18 hand? 19 MR. SHEA: They -- 20 MS. MANDEL: Can I just ask one clarifying. 21 MS. YEE: Yes, Ms. Mandel? 22 MS. MANDEL: When we do it on a petition for 23 rehearing, this isn't -- there is not a petition to 24 petition rehearing, we don't have that problem that we 25 have with the, you know -- 26 MR. LEONARD: I think we caught that in the 27 rule. 28 MS. YEE: Yeah. 20 1 MS. MANDEL: All right, thank you. 2 MR. SHEA: Okay, I'll revise -- amend the 3 motion and make the motion, two parts. 4 The first motion would be to deny the petition 5 for rehearing. 6 MS. YEE: Okay. We have a motion by Mr. Shea 7 to deny the petition for rehearing. 8 Is there a second? 9 MS. STEEL: Second. 10 MS. YEE: Second by Ms. Steel. 11 Without objection, that motion carries. 12 Okay, next motion? 13 MR. SHEA: The second motion would be to 14 approve the drafting of the formal opinion by Appeals 15 and, of course, as Mr. Leonard said, bring it back to the 16 Board for final approval. 17 MS. YEE: Okay, motion by Mr. Shea to direct 18 staff to draft the formal opinion as relates to this 19 appeal. 20 Is there a second? 21 MS. STEEL: Second. 22 MS. YEE: Second by Ms. Steel. 23 I just have one further question. With respect 24 to -- I guess there was additional information that was 25 appended to the petition for rehearing. So, with respect 26 to drafting the formal here, it would be reliance on what 27 actually was available for that original hearing on the 28 appeal? 21 1 MS. KELLY: Well, the record is what guides us 2 in drafting the formal. However, the Appeals analysis is 3 independent. And, so, that if there is authority that 4 wasn't necessarily available in the record, but that 5 supports the Board's determination, then that authority 6 may be cited. 7 In other words, if the parties left out a 8 regulation or a statute in the briefing and at the oral 9 hearing, yet it applies to the legal analysis, then that 10 may be included in the formal. 11 MS. YEE: Okay. What would be the source of 12 that? So, even if it weren't referenced in the -- 13 anywhere with respect to the original appeal? 14 MS. KELLY: Yes. 15 MS. MANDEL: Is your question is why don't they 16 take judicial notice of the documents? 17 MS. YEE: I mean there was a lot of information 18 that was submitted as it relates to the petition for 19 rehearing. So, I wanted to know whether any reliance 20 would be placed on what we got relative to the petition 21 for rehearing versus the original appeal. 22 MS. KELLY: The record -- all of the arguments 23 in the briefing and in the oral hearing, everything 24 leading up to the Board's decision, that's what guides us 25 in drafting the formal because the formal is going to 26 reflect the Board's decision in February. 27 But I don't think the Appeals Division is 28 limited only to what the parties brought forth in that if 22 1 there is other authority that supports the Board decision 2 that might apply. 3 And, so, I think you might be referencing -- 4 are you referencing -- you're referencing authority or 5 news articles or -- I'm not sure exactly. 6 MS. YEE: Authorities and I'll give you an 7 example. 8 MR. LEONARD: Maybe we should discuss it now 9 and take notice in the hearing. 10 MS. YEE: I mean, if -- what you had said 11 earlier was that the formal would be specific to the 12 facts this case -- 13 MS. KELLY: Uh-huh. 14 MS. YEE: -- related to this Appellant? 15 MS. KELLY: Yes. 16 MS. YEE: And I was no vote on that prior 17 hearing and -- but my question really relates to whether 18 in the drafting of the formal at this point, any 19 information that was submitted to either support or -- or 20 oppose the petition for rehearing could be relied upon? 21 And it sound like Appeals is open to looking at 22 information from whatever source to support the 23 determination that the Board had made in the original 24 appeal. 25 MS. KELLY: Yes. 26 MS. YEE: Okay. Mr. Leonard? 27 MR. LEONARD: My question is more procedural, 28 to you, Madam Chair, and counsel, would it help that in 23 1 this time that we take notice? 2 I've been given new information that apparently 3 both sides missed that the housing tax credits section 4 of -- not section, but it's in the same section of code 5 as the section -- as the credit and dispute here today, 6 had a staff analysis by Ann Maitland of the Senate 7 Revenue and Taxation Committee when the housing tax 8 credit legislation was proceeding that explicitly 9 discussed the interaction between the credit and the 10 alternative minimum tax, which is again the subject of 11 the dispute here on the enterprise tax zone credits. 12 And I think it is relevant and helpful for the 13 legislative record. It is not statute, it is not a 14 judicial decision. It is a staff analysis. 15 And I think that's the hesitation, if I can 16 guess, that Chairman Yee -- chairwoman Yee is working on. 17 We've never discussed it, nor parties have been able to 18 argue back and forth what weight to give it. 19 But it's clearly new and it's clearly 20 relevant -- or newly rediscovered. It's old, but it's 21 contemporaneous with the debate on the house and tax 22 credit bill. 23 MS. YEE: So, would something like that be, I 24 guess, a source of -- 25 MS. KELLY: In the realm, yes. That's the 26 universe that I am talking about -- evidence that's 27 pertinent to what happened with this credit and what the 28 legislative intent was. 24 1 To the extent that -- well, to the extent that 2 that evidence is out there and the Appeals Division 3 discovers it in the course of its drafting, it would be 4 addressed. 5 So, whether or not it supports the Board 6 decision, we would need to, most likely, address it. 7 MS. YEE: I suppose to the extent that we never 8 had that particular issue with the low income housing 9 credit briefed -- 10 MS. KELLY: That's a good point. 11 MS. YEE: -- it has been brought to our 12 attention that really as it relates to this petition for 13 rehearing, I guess, more fully, I think there was some 14 mention of a low income housing tax credit in the oral 15 presentation, although I believe the focus of the oral 16 hearing was on the one particular piece of legislation, 17 that was AB57 at that time. 18 MS. KELLY: Uh-huh. 19 MS. YEE: And this is where I'm trying to get 20 some reconciliation in terms of how broad do we reach in 21 terms of trying to support the Board's determination? 22 MS. KELLY: Right, right. 23 MS. YEE: And with respect to this new 24 information, and, Mr. Leonard, I think you're absolutely 25 right, there was some interesting information that came 26 forth, but as it related to Respondent to this petition 27 for rehearing, it certainly wasn't before us during the 28 original appeal nor was it briefed by both parties. 25 1 MS. KELLY: Uh-huh. I'd have to say that 2 that's a discretionary call as to whether or not that 3 particular evidence goes to the -- to the narrow issue 4 that was before the Board and that's one we will have 5 look at when we're drafting. 6 And, of course, when the formal is drafted, 7 it's a confidential document for the Board Members to 8 review. 9 MS. YEE: Okay. 10 MS. KELLY: And we're open to be feedback on 11 that. 12 MS. YEE: Okay. Other comments, Members? 13 MR. SHEA: Well, I share your concern, Ms. Yee, 14 that this scope of the formal not be a source of 15 precedence on credits that weren't explicitly at issue in 16 the NASSCO case. 17 And because there hasn't been a full hearing of 18 the evidence and there wasn't full discussion and that 19 wasn't my intent to make a motion, even if it is 20 appropriate and consistent with Board practice to, 21 perhaps, introduce other evidence in support -- as you 22 indicated, in support of the Board's position. 23 So, it doesn't seem to me that any such 24 discussion would be precedential with respect to FTB's 25 interpretation of the formal. 26 And that would have to be adjudicated if -- 27 if -- if FTB were to assess on that basis and a taxpayer 28 were to appeal on the basis of the this formal opinion, 26 1 it seems to me. 2 MS. YEE: Okay. All righty, we have a 3 motion -- any other comments, Members? 4 Okay, we have a motion by Mr. Shea, second by 5 Ms. Steel to direct staff to draft a formal opinion 6 respect to the appeal of NASSCO Holdings, Incorporated. 7 Please call the roll. 8 MS. OLSON: Madam Chair? 9 MS. YEE: Not voting. 10 MS. OLSON: Mr. Leonard? 11 MR. LEONARD: Aye. 12 MS. OLSON: Ms. Steel? 13 MS. STEEL: Aye. 14 MS. OLSON: Mr. Shea? 15 MR. SHEA: Aye. 16 MS. OLSON: Ms. Mandel? 17 MS. MANDEL: No. 18 MS. OLSON: Motion carries. 19 MS. YEE: Okay, thank you. 20 ---o0o--- 21 22 23 24 25 26 27 28 27 1 H2.4 ROBIN NOTTINGHAM REID 2 NO. 467216 3 ---o0o--- 4 MS. YEE: Next sub item, Robin Nottingham Reid. 5 Is there a motion? 6 MR. SHEA: I'll make a motion to sustain the 7 Franchise Tax Board. 8 MS. YEE: Motion by Mr. Shea to sustain the 9 Franchise Tax Board. 10 Is there a second? 11 I'll second that motion. 12 MR. LEONARD: Question? 13 MS. YEE: Yes, Mr. Leonard? 14 MR. LEONARD: I wanted to verify this. We had 15 some post hearing work that now both parties are in 16 agreement. 17 Is that -- is my understanding correct on this? 18 MS. KELLY: I don't think so. 19 MS. MANDEL: Is the motion -- I think this is 20 kind of what Mr. Leonard's asking, does the motion to 21 sustain FTB take into account the concessions that FTB 22 made? 23 MS. KELLY: Right. So, the decision addresses 24 that the refund has been allowed with respect to $36. 25 MS. MANDEL: Okay. 26 MS. KELLY: And concludes that the 400 was 27 applied to the 2000 tax year. 28 MS. YEE: Okay. So, that modification is 28 1 incorporated into the motion? 2 MS. KELLY: Uh-huh. 3 MR. LEONARD: Thank you. 4 MS. YEE: Motion by Mr. Shea, second by Yee. 5 Without objection, that motion carries. 6 MS. OLSON: Our next item is -- 7 MR. LEONARD: Madam Chair? 8 MS. YEE: Yes, Mr. Leonard? 9 MR. LEONARD: On this, it -- I guess my 10 question was confusing. 11 The taxpayer still appears to be confused about 12 the application of this money for different tax years. 13 Will our notice letter clarify that for her? 14 MS. KELLY: Yes. 15 MR. LEONARD: Thank you. 16 MS. YEE: Thank you. 17 ---o0o--- 18 (Whereupon other proceedings were had.) 19 20 21 22 23 24 25 26 27 28 29 1 H2.2 MATT WARD 2 NO. 431775 3 ---o0o--- 4 MS. OLSON: Then we H2.2, Matt Ward, 5 adjudicatory. 6 MS. YEE: Okay, Members, we were on item H2, 7 sub item 2 decision on Matt Ward. We did have some 8 testimony on this. Is there a motion? 9 MR. SHEA: I'll make a motion. 10 The motion is to adopt the staff 11 recommendation, but allow a worthless stock deduction of 12 969,904 for four tax year 2000. 13 MS. YEE: Okay. 14 MS. STEEL: Second. 15 MR. LEONARD: Second. 16 MS. YEE: Okay. We have a motion by Mr. Shea, 17 second by Ms. Steel. 18 Yes? 19 MS. KELLY: Yes, I was just checking the 20 number, but I believe it's -- 21 MS. YEE: Yeah, it's the modified. 22 MS. MANDEL: Okay. I was supposed to do that 23 too. 24 MS. YEE: Okay, very well. So, we have a 25 motion, a second. 26 Without objection, that motion carries. 27 Thank you. 28 ---o0o--- 30 1 REPORTER'S CERTIFICATE 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 AUGUST 31, 2009 I recorded verbatim, in shorthand, to the 10 best of my ability, the proceedings in the above-entitled 11 hearing; that I transcribed the shorthand writing into 12 typewriting; and that the preceding pages 1 through 31 13 constitute a complete and accurate transcription of the 14 shorthand writing. 15 16 Dated: October 29, 2009 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 31