1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 OCTOBER 6, 2009 10 11 SALES AND USE TAX APPEAL HEARING 12 APPEAL OF 13 C1a ALI K. AMIDY, RITA M. BELUS AND FRED JAMES BELUS 14 No. 309685 (CH) 15 C1b ALI K. AMIDY 16 No. 309681 (CH) 17 AGAINST PROPOSED ASSESSMENT OF 18 SALES AND USE TAX 19 20 21 22 23 24 25 26 27 Reported by: Juli Price Jackson 28 CSR No. 5214 1 1 P R E S E N T 2 For the Board Betty Yee of Equalization: Chair 3 Jerome E. Horton 4 Vice-Chair 5 Bill Leonard Member 6 Michelle Steel 7 Member 8 Marcy Jo Mandel Appearing for John 9 Chiang, State Controller (per Government Code 10 Section 7.9) 11 Diane G. Olson, 12 Chief Board Proceedings 13 Division 14 For Board of David Levine 15 Equalization Staff: Staff Counsel 16 17 For Department: Scott Lambert Hearing Representative 18 19 Kevin Hanks Chief, Headquarters 20 Operations Division 21 Robert Tucker Tax Counsel 22 23 For Petitioner: Ali K. Amidy 24 Taxpayer 25 Steven J. Packey Attorney 26 27 ---oOo--- 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 OCTOBER 6, 2009 4 ---oOo--- 5 MS. YEE: Thank you. Okay, next item? 6 MS. OLSON: Our next item is C1, Ali K. Amidy, 7 Rita Belus and James -- Fred James Belus and Ali K. 8 Amidy. 9 Please come forward. 10 Board Proceedings has received contribution 11 disclosure forms for this afternoon's hearings from the 12 parties, agents and participants. All forms were 13 properly completed and signed. No disqualifying 14 contributions were disclosed. All parties, agents and 15 participants are the alpha listing provided to your 16 office. 17 Each person sitting at the table will be asked 18 to introduce themselves and their affiliation with the 19 taxpayer for the record. Ten minutes is allocated to 20 the taxpayer for their opening presentation, followed by 21 ten minutes for the Department's presentation and five 22 minutes is allocated to the taxpayer for rebuttal. 23 Ms. Yee? 24 MS. YEE: Thank you very much. 25 Good afternoon. 26 Mr. Levine? 27 MR. LEVINE: Good afternoon, Madam Chair, 28 Mr. Vice Chair, welcome, Members, David Levine from the 3 1 Appeals Division. 2 The issues in these petitions are whether 3 additional audit adjustments are warranted, whether the 4 retail sale of every tangible personal property with the 5 sale of the business by Petitioner Amidy was taxable, 6 and whether Petitioners were negligent, whether interest 7 should be relieved because there was unreasonable delay 8 by Board staff, with no significant aspect of the delay 9 the responsibility of the Petitioners and whether the 10 amnesty interest penalty should be relieved. 11 One revised recommendation by the Department 12 that Appeals -- the Appeals Division agrees with, 13 Petitioner Rita Belus was a partner who withdrew from 14 the partnership on December 12th, 2003. At the time the 15 D & R was written, the policy was that a partner did not 16 avoid liability for future debts of the partnership 17 unless he or she notified the Board of the change -- the 18 Board was notified of the change of the partnership for 19 purposes of holding the permit. 20 The Department has changed that policy and now 21 under the facts here does not proceed against the 22 partner after withdrawal for post withdrawal debts. So, 23 the Department's revised recommendation is that Rita 24 Belus should be held liable for $156,019 of tax, plus 25 interest and penalties, rather than the full 197,267 26 that the Department asserts against the remaining 27 partners. 28 MS. YEE: Could you say those figures one more 4 1 time? 2 MR. LEVINE: The Department asserts against the 3 partnership tax of -- I am sorry, 185,897.88 after 4 judgment plus interest and penalties. 5 MS. YEE: Right. 6 MR. LEVINE: The Department is now asserting 7 against Rita Belus only $156,019, plus interest and 8 penalties, so -- 9 MS. YEE: Okay. 10 MR. LEVINE: -- a reduction of about $32,000. 11 MS. YEE: Okay, thank you. 12 All right, very well, thank you. 13 Good afternoon, gentlemen. 14 MR. PACKEY: Good afternoon. 15 MS. YEE: If you'll introduce yourselves for 16 the record, you'll have ten minutes for your 17 presentation. 18 If you could pull your yourself right up to the 19 microphone, please? 20 MR. PACKEY: Good afternoon, Steve Packey 21 representing the taxpayer. 22 MS. YEE: Sir? 23 THE WITNESS: Ali Amidy, taxpayer. 24 MS. YEE: Thank you, Mr. Amidy. 25 please proceed. 26 MR. PACKEY: Okay, we won't -- there is four 27 issues on the table. I'm going to go briefly -- I 28 prepared a brief, but that -- I believe you have a copy 5 1 of it, but I don't know if that's going to be submitted 2 or not. 3 The -- our main points are in issue -- 4 MR. LEONARD: Do we -- 5 MS. OLSON: It's right here (indicating). 6 MR. LEVINE: The exhibits are being 7 distributed, but the brief, because it's by a 8 represented taxpayer, is not being distributed because 9 it was just submitted today, not 55 days in advance. 10 MR. PACKEY: So, I'm going to cite from this -- 11 MS. YEE: Before you start -- 12 MR. LEONARD: Has somebody reviewed the brief 13 to make sure -- is it a brief or is it more exhibits? 14 MR. PACKEY: It's -- it'd quasi brief exhibits. 15 MR. LEVINE: It's a brief with exhibits. We've 16 distributed the exhibits, which actually includes, I 17 think, the brief that was submitted at the Appeals 18 level, which we regard as an exhibit because it wasn't 19 for the hearing. 20 MR. LEONARD: I have that one, okay. 21 Through the Chair, can I ask the taxpayer -- 22 MS. YEE: Mr. Leonard, yes? 23 MR. LEONARD: Are you raising any new argument 24 than what was in the brief now that wasn't previously 25 alluded to, described -- 26 MR. AMIDY: Yes, I do. 27 MR. PACKEY: In issue No. 1 -- you want to go 28 ahead and follow up on that, Mr. Amidy? 6 1 MR. LEONARD: If there is a new issue, it 2 should be properly noticed to the Department. 3 I don't want to hold them without ability to 4 know and respond. So, if it's new, I'm wondering if we 5 should even proceed? 6 MR. AMIDY: It's not new, they know about this 7 but I raised this issue, we never raised it in the other 8 hearing we have. 9 MS. MANDEL: Just to follow up on your 10 question, Mr. Levine, are they -- well, I guess he said 11 it wasn't new, but if they're raising something that 12 they haven't really raised before, if it's in writing, 13 they can -- can it be -- it's kind of like amending the 14 petition in a sense which -- 15 MR. LEVINE: I haven't read the brief, just 16 looked at it. I had a couple of seconds and it's 17 definitely a brief. 18 As far as new issues, if I understand them, I 19 think it's probably just a -- either the same or a 20 different way of arguing why more audit adjustments 21 should be allowed rather than something purely new. 22 But after you hear the issue, if the Department 23 either can not respond properly because they are not 24 prepared or the Board Members have more questions, you 25 certainly can delay your decision and give either or 26 both parties time to respond. 27 MR. PACKEY: I think our main contention is in 28 issue No. 1 is just that he -- that the taxpayer did 7 1 provide documents that he felt were more more correct 2 based upon what the actual figures were. The Department 3 relied on other figures. 4 MS. YEE: Okay. Why don't we do this, why we 5 don't have you, Mr. Packey, go ahead and make your 6 presentation. We have a packet of exhibits before us 7 and we can make a determination after we hear the 8 presentation and the discussion as to whether we need 9 anything further. 10 MR. PACKEY: I will just go through all four of 11 the issues and just some of my beliefs. 12 MS. YEE: In your ten minutes, yes. 13 MR. PACKEY: Well, the first state of 14 contention is that no actual sales data was presented 15 and then only some of the records were made available. 16 However, in this case the taxpayer was only providing -- 17 if the taxpayer is only providing partial and incomplete 18 records, this was never referenced until December of 19 '04. The audit originally began in April of '04. 20 According to the taxpayer, the requested 21 information was provided as requested by the auditor. 22 In fact, the taxpayer received a faxed correspondence 23 from the Department on June 30th, 2004 and October 7th, 24 2004 requesting a signed waived of the limitations. 25 Both letters did not mention any outstanding requested 26 information. 27 And in the Department's October 14th, 2004 28 e-mail correspondence to the taxpayer there was written 8 1 clarification requested and only a passing reference 2 to -- based on the limited information you provided -- 3 however, this correspondence failed to provide an 4 explanation of any outstanding previously requested 5 information. 6 Issue No. 2, whether Petitioner Amidy has 7 established that the sale of fixtures, furniture and 8 equipment is not taxable. I just have a real quick 9 couple of points there. 10 Taxpayers believe -- taxpayer believes he filed 11 an amended return for the period in question and paid 12 the tax in full. In fact, the taxpayer authorized a 13 payment on February 23rd, 2006 for $107,124. Taxpayer 14 also believes that an additional amount of $6,187.50 was 15 withheld from escrow on June 3rd, 2004, but he does not 16 not believe that was applied to this period. 17 And in the exhibits there is reference to that, 18 I believe it's Exhibit No. 1. 19 Issue No. 3, whether -- whether the Taxpayer 20 Petitioner was negligent. Here the Department found him 21 negligent. Our point basically is -- let's see, in what 22 we just -- in here we've -- we believe the taxpayer's 23 simple reliance on the fact that the unreported income 24 was significant does not rise to the level of failure to 25 do what a reasonable, ordinary person would have done 26 under the circumstances. 27 The taxpayer has consistently represented that 28 all sales tax returns were prepared based on the 9 1 information he provided to his tax return preparer. The 2 initial information for the sales of petroleum products 3 and mini-market sales was reflected on computer cash 4 register tapes. This information was then transposed 5 manually to a spreadsheet. 6 After the commencement of the audit, the 7 taxpayer's discussion with the sales tax auditor, he 8 recognized his business manager had -- his business 9 manager given him incorrect sum totals for his total tax 10 preparation purposes. As soon as he recognized the 11 error, he prepared amended tax returns for each tax 12 period. 13 Further, the Department alleges the taxpayer 14 failed to provide the Department staff with complete and 15 accurate records and even asserted that they had been 16 destroyed. 17 This provides a level below the standard of 18 care. However, in correspondence dated December 15th, 19 2004 from the Department, the taxpayer again -- the 20 Department acknowledges that the taxpayer stated that in 21 a phone conversation with December 4 supporting 22 documentation would be provided by January 2005. 23 The Department refused to provide the taxpayer 24 additional time to provide documents and advised the 25 date of submission of documents could not be extended 26 for the audit. The audit would be based upon the best 27 available information. 28 Here we believe that the Department is not 10 1 acting in a prudent manner. Taxpayer was only 2 requesting a few extra weeks throughout the holiday 3 season in late December to provide these documents and 4 that was not given to him. 5 The Department also alleges that the taxpayer 6 had extensive knowledge of filing sales and use tax 7 returns because he had owned previous businesses. 8 However, the taxpayer, he operated at gas station 9 mini-mart and he was really not educated in business 10 affairs and has no formal tax schooling. He's not even 11 a native English speaker. 12 The simple fact that he operated a business 13 prior does not have -- does not equate to extensive 14 knowledge of the filing of sales tax and use tax 15 returns. 16 The fourth issue, the -- whether the 17 Petitioners are entitled to relief for the interest due 18 to the unreasonable delay by the Board staff, one of the 19 Board's point is that interest is not a penalty, it is 20 simply compensation for Appellant's use of money after 21 the due date of the tax. 22 In this case the taxpayer really didn't have 23 use of his money during this period. It was -- 24 basically, it's been held in -- held in escrow. 25 And we -- basically, this audit's been going on 26 since 2004. We're into 2009. We just feel that that's 27 an unreasonable amount of time for the taxpayer to 28 suffer through the worries of an audit. And it -- he -- 11 1 in my brief, I kind of lay out some of the timelines -- 2 I won't go into those again. 3 But he feels he did provide -- was providing 4 information as requested. And we just feel that this 5 was just -- just too long for an audit. There is 6 several circumstances where the Department attorneys 7 would take leave. There was one case with a letter 8 referencing a delay for a -- for another five months, 9 for another period of time -- I believe that's -- again 10 in correspondence February 27th, 2007 from the 11 Department to the taxpayer advising that the Board's 12 Legal Department Appeal proceedings was deferred until 13 August 26th, 2007, pending the final determination of 14 issues regarding LLC statute. That was one -- that was 15 the five month delay. 16 And then there was another letter from 17 Miss Katherine MacDonald, who had previously been 18 handling the review. She was going on leave, so, she 19 would not be issuing a decision in the matter and, so, 20 that resulted in another delay. 21 So, the sum -- sum total of all these delays 22 and the fact the taxpayer wasn't able to provide -- 23 didn't get an extra -- few extra weeks at the end of 24 December of 2004, we believe this could have been 25 handled at that point rather than now it's stretched to 26 to Appeals and a four or five year period of time. 27 MS. YEE: Okay, Mr. Amidy, do you have any 28 comments at this point? 12 1 MR. AMIDY: Yes. I owned this business, only 2 50 percent of this business, but I sold this business. 3 We opened two escrow one for business and one for 4 property. 5 On the business you have a copy of 6 (unintelligible) Exhibit No. 1 was attached. At the 7 close escrow I paid my equipment, deducted from my 8 account for $6,185 has been deducted from the escrow 9 company. I don't know why the escrow company did not 10 pay that money. I don't have no idea. And I will pay 11 that later on again myself. 12 And I went to the escrow company yesterday. 13 They could not answer me any -- didn't have no answer 14 for me why they didn't pay it, but this money was 15 deducted from my account. 16 Back on 2006, when the business been sold, I 17 sold it to the -- to Mrs. Delgado, she tried to sold the 18 business and the property to different people called 19 Patels. And when they sold -- closed that business and 20 I have a promissory note on the property because 21 property was carried on the LLC, limited liability 22 corporation, and business was running under an A & M 23 Gas, a partnership. 24 When I sold the property under the LLC, I 25 carried a note for $400,000 and was on the second Deed 26 of Trust. And when she sold it, she's supposed to pay 27 me that $400,000 on the property. 28 And somehow Board of Equalization has put the 13 1 lien on the escrow company demand for that money. And 2 she did not have no idea why the -- this demand is 3 coming from her to collect the money because that was a 4 different tax ID number, it was not on the business, it 5 was on the property. 6 So, Board of Equalization has ordered the 7 escrow company to hold $321,404 my money since on 8 February 22nd, '06 in the escrow. And I have not have 9 any access to that money since that time. 10 I could use that money to invest some other 11 businesses and make -- after five years and some months, 12 I could make some money on that. 13 Now they hold that money in the escrow company 14 and now they ask me to pay the penalty and interest 15 and -- for the money which I have in escrow company. 16 And I do not making any money on that money which is in 17 escrow company, probably 1, 1 and a half percent 18 interest, which is -- I am willing to pay that 1 and a 19 half interest to Board of Equalization. 20 Why should I pay another 10 percent penalty and 21 10 percent interest for the money which they're holding 22 in the escrow company and they didn't have no right to 23 hold that money because that was a different property 24 sold. 25 And I don't know how the Board of Equalization 26 wrote that letter to the escrow company to hold that 27 money. I tried to fight the escrow company. And 28 they -- the seller say, "If you don't release money, I 14 1 am going to sue because this is your problem." 2 So, I didn't have no choice but to tell the 3 escrow company but to hold the money and release the 4 $107,000 of that money to pay the Board of Equalization 5 after I made an amendment to the tax return for 36 6 month. 7 All my document was ready, 36 boxes I have, 8 which show every single date with the Z-tape and at the 9 end of the month I have a Z-tape from the cash register. 10 I do not run that business. My partner Rita and Fred 11 Belus, husband and wife, was running this business. And 12 I was absentee owner. And they have -- those boxes 13 recommend every single day, provide every single day of 14 every month Z-tape. 15 And then Board of Equalization accusing me -- 16 they went to internet and the gas station, owner gas 17 station supposed to make 15 cents a gallon and make 35 18 to 40 percent in the market. 19 That's not true. Some of the gas station right 20 now, we lose the money to be competitive with the other 21 major brands. 22 MS. OLSON: Time has expired. 23 MR. AMIDY: Sometimes we lose 5 to 6 cents a 24 gallon to keep the numbers correct that with the other 25 competition we have -- we are not always taking 15 cents 26 a gallon. And that Z-tape show exactly how many gallons 27 sold, what was the margin, what we bought it, how much 28 payout was, how much tax we collected, sales tax, and 15 1 how much is allowed to California (unintelligible). 2 And one of the -- one of the questions was 3 Board of Equalization why we show more money received 4 and more than sell. Those was was ATM machines. We 5 have an ATM machine that have 1,000 to 2,000 a day and 6 those deposits was made in the bank, that's where the 7 difference was. I provide those records to State 8 Board. 9 MS. YEE: Okay. Mr. Amidy, your time has run 10 out, but let us hear from the Department. 11 You'll have time on rebuttal. 12 Thank you. 13 Department? 14 MR. LAMBERT: Good afternoon, Madam Chairwoman 15 and Members. 16 My name is Scott Lambert and I will be 17 representing the Sales and Use Tax Department today. 18 To my right is Kevin Hanks, also with the Sales 19 and Use Tax Department and to Mr. Hanks' right is Robert 20 Tucker with the Legal Department. 21 This hearing involves two Petitioners that 22 operate a gas station with mini-mart doing business as 23 A & M Gas. The first entity is a partnership that was 24 audited for the period April 2001 to April 2004. And 25 the second entity is a sole proprietorship that was 26 audited for the period April 2004 to May 2004. 27 The partnership started operating January 1999. 28 These are the first sales and use tax audits or both 16 1 Petitioners. 2 There are four items at issue here today. One, 3 understated taxable sales; two, the sale of fixtures and 4 equipment by the sole proprietorship; three, the 5 imposition of a negligence penalty; and, four, requests 6 for relief of interest due to an unreasonable delay by a 7 Board employee. 8 Regarding the understated taxable sales, 9 initially the liability was established by using the 10 sales from the federal income tax returns and using 11 various auditing techniques. The Petitioners were 12 ultimately able to provide fairly accurate sales 13 journals, although the process of establishing the 14 initial audit liability was fairly complicated, the 15 current method is very straightforward. 16 The current audited figures have been 17 established by using the taxpayer's own record of sales. 18 The Department has accepted the total sales amounts 19 recorded in the Petitioner's records. 20 The taxable fuel sales were established by 21 using the Petitioner's adjusted sales journals and 22 removing taxes that were included. 23 The mini-mart sales were obtained from the 24 Petitioner's adjusted sales journals. The overall 25 markup of record for the mini-mart of 39 percent was 26 accepted as reasonable. 27 The Petitioner reported 53 percent of mini-mart 28 sales as taxable. A test was conducted using two 17 1 quarters of purchases -- second quarter 2002 and the 2 third quarter 2003. The overall taxable percentage from 3 the test was 75 percent. 4 The 75 percent taxable ratio was applied 5 against total mini-mart sales to arrive at audited 6 taxable mini-mart sales. 7 The fuel sales were added to the audited 8 taxable mini-mart sales to arrive at the audited taxable 9 measure. 10 The difference between the audited and reported 11 taxable measure is $2.269 million. It should be noted 12 that the difference between the recorded and reported 13 taxable measure is $1.9 million. 14 The Petitioner has acknowledged that they made 15 errors in reporting taxable sales. The remaining 16 $350,000 difference between the audited and recorded 17 taxable measure is from using the 75 percent taxable 18 mini-mart ratio instead of accepting the 53 percent 19 taxable percentage reported by the Petitioner. 20 The Petitioner argues that the reported taxable 21 figures from the sales journals should be used instead 22 of using the 75 percent ratio obtained from the two 23 quarter test. 24 The Petitioner states that cash purchases were 25 not included in the purchases used for the segregation 26 test. Purchase invoices were provided for one of the 27 quarters of the test, the third quarter 2003. And it 28 was verified that those purchases were included in the 18 1 test. The cash purchase invoices for the other quarter, 2 second quarter 2002, were not provided. 3 The Petitioner used a key ring method to report 4 and record taxable mini-mart sales. The overall 5 reported taxable markup was a negative 4 percent and the 6 nontaxable markup was 172 percent. These markups are 7 inconsistent for this type of business. Therefore, the 8 purchase segregation test was used to establish taxable 9 mini-mart sales. 10 Sales of fixtures and equipment by the sole 11 proprietor. The partner sales of the partnership 12 interests were considered occasional sales and, 13 therefore, neither sale by a partner was taxable. The 14 sale of the fixtures and equipment by the sole 15 proprietorship to an unrelated entity was considered a 16 taxable transaction. The sales price of the fixtures 17 and equipment was $75,000. It was included in the 18 audited taxable measure as it was not reported on the 19 sales and use tax returns. 20 Regarding the negligence penalty, Mr. Amidy 21 prepared and filed the sales and use tax returns. The 22 difference between the audited and reported taxable 23 measure was $1.9 million . The overall percentage of 24 error was 32 percent. These amounts are significant and 25 can not be dismissed merely as oversights or reporting 26 errors. 27 Although this is the Petitioner's first 28 audit -- first audits, Mr. Amidy does have extensive 19 1 experience in owning and operating other businesses. 2 Mr. Amidy operated A & M with another partner 3 starting April 1993. In addition, Mr. Amidy owned and 4 operated two other similar businesses before the start 5 of this partnership and also owned two other unrelated 6 businesses that were required to file sales and use tax 7 returns. 8 Due to the large overall percentage of error, 9 the significant differences between reported and 10 recorded taxable measure and petitioner's extensive 11 business experience, the Department applied a negligence 12 penalty. 13 Regarding the imposition of interest. The 14 imposition of interest is mandatory and the law only 15 provides for relief of interest under narrow, specific 16 circumstances, which are not present in these cases. 17 The Department and Appeals Division have been very 18 responsive to the Petitioner. The amount of time 19 necessary to get this case to this point, although long, 20 were not caused by the actions of the Board of 21 Equalization employees. 22 The delays were caused specifically by the 23 Petitioner's actions and requests. Petitioner brought 24 up numerous different arguments throughout the audit and 25 appeals process. Both the Department and the Appeals 26 Division allowed the Petitioner additional time to try 27 and support their different positions. Petitioner was 28 notified numerous times throughout the audit process 20 1 about the accrual of interest and about their ability to 2 make payments towards the audit to stop the additional 3 accrual of interest. Although some payments have been 4 made, there continues to be a sizeable outstanding tax 5 balance. 6 The Petitioner's failure to timely present 7 records in the length of time necessary to correct the 8 records after they were provided also directly affected 9 the amount of time it took to conduct the audit. It 10 also caused Board staff to spend significant time, using 11 various audit techniques to establish the audited 12 taxable measure. 13 The Petitioner stated on two separate occasions 14 that the sales journals and detailed records were 15 discarded out of ignorance, only to provide the same 16 records months and years later. 17 A list of events in chronological order has 18 been prepared and can be discussed. 19 In regards to the escrow, which is new 20 information, this is news to the Department. As far as 21 we understood, the escrow was cleared. So -- and as we 22 looked at one of the checks, there appears to be a 23 different seller's permit number on that particular 24 check. So, we're not sure if there might be another 25 entity that's involved here. 26 Anyway, based on the reasons that I have 27 presented here, the Department recommends that Appeals 28 Division decision and recommendation be adopted. 21 1 MS. YEE: Thank you, Mr. Lambert. 2 Ms. Steel? 3 MS. STEEL: You know, actually, they raised 4 three questions here and you answered one. 5 First, that escrow was holding $6100 that you 6 just got information. So, you don't know how it's been 7 cleared or they double paid, you don't know? 8 And then second question was that he's been 9 asking that we levied the amount of few hundred thousand 10 dollars in escrow when it was different sales and that 11 was not answered. 12 And third one is the ATM machine that they -- 13 that they overcollected and deposited because of the ATM 14 that you didn't mention anything about it. 15 So, could you answer those two? 16 MR. LAMBERT: I can. In terms of the ATM, the 17 ATM deposits was an argument that the taxpayer made when 18 we had used the gross receipts from the federal income 19 tax returns. 20 We are not using those now. And, in addition 21 to that, we also took a look at whether the ATM deposits 22 were included in the gross receipts and we could not 23 establish -- in fact, we determined that they were not. 24 So -- 25 MS. STEEL: You mean they didn't have an ATM 26 machine there? 27 MR. LAMBERT: No, they did have an ATM. 28 MS. STEEL: Okay. 22 1 MR. LAMBERT: They did have an ATM machine, but 2 it wasn't shown in their fuel sales that they reported 3 on the income tax returns. 4 And, in addition, after the D & R was prepared, 5 we now use the taxpayer's own sales journals. And those 6 figures do not include the ATM deposits in their fuel 7 sales. 8 So, really, the argument that the taxpayer is 9 making is an argument that was made before the re-audit 10 when we were actually using the sales from the income 11 tax returns. 12 As far as the escrow, I can't answer that 13 question because I don't know. I don't have the 14 information. 15 As I stated, the -- it was my understanding 16 that when they went under the escrow they did it under 17 a company called Hesperian LLC, which was different than 18 this particular partnership and that they released the 19 funds from that escrow. And that was my understanding 20 of it. 21 Because the partnership and Hesperian LLC were 22 two different entities. And that's why they released 23 it. 24 MS. YEE: Okay. Mr. Leonard did you have a 25 question? 26 MR. LEONARD: I'll wait until after rebuttal 27 for questions. 28 MS. YEE: Very well. 23 1 You have five minutes on rebuttal. 2 MR. PACKEY: Well, I think our biggest points 3 again are the negligence penalty and the interest, just 4 over five years for an audit when the Department's 5 basically frozen his money, that we feel that that's an 6 unreasonable amount of time. 7 Taxpayer didn't have control of that money 8 during that period of time and just really feel that 9 this audit could have been taken care of. 10 And it started in May of 2004, could have been 11 completed in December of 2004, but the Department 12 refused to allow the taxpayer additional time. 13 The taxpayer was not providing information or 14 withholding information or specifically stated that he 15 disregarded or had thrown documents away. 16 According to the general audit procedures, that 17 should have been determined a significant verbal contact 18 and stated in writing. 19 MS. YEE: Mr. Amidy? 20 MR. AMIDY: Yes, regarding this -- the delay 21 from the absolutely is not true. 22 If you look at on Exhibit C, exhibited in that 23 No. 3, the Board of Equalization requests some documents 24 from me back on May 26th when in audit. 25 They never mentioned any Z-tape or any daily 26 report or anything what I asked. They asked me for 27 sales tax return, which I show them my sales tax return. 28 On my sales tax return showed exactly totals of all of 24 1 the sales, including ATM machine because ATM machine 2 automatically every day deposit next day to our banking 3 account. They don't give us the cash. It go to our 4 business account, which was -- every morning was coming 5 to our -- and I will show at the end of the year how 6 much cash we received from the business. 7 The business was running for employee -- we had 8 a cash register with a Z-tape, how can we change that 9 Z-tape? 10 Employee was reporting every day and was 11 managing by my partner. And I was not running that 12 business. So, I had experience, yes, I do, I have a lot 13 of businesses. I never been audited before. This 14 business was not running by me. I was not touching that 15 business. I was in the business once a month or maybe 16 twice a month to -- when I pass, see what is going on. 17 So, this -- the ATM machine was absolutely was 18 going to our ATM machine and was deposited. And on 19 that -- back on the Exhibit No. -- Exhibit No. 6, that 20 was the first time on January 12th, Board of 21 Equalization has write me after eight months, saying, 22 "Mr. Amidy, we need the daily and monthly sales 23 summary and also we need the Z-tape." 24 And on the same, on January 20th, I providing 25 four boxes. They asked for four months, they said we 26 need four months, we don't need all 36 boxes. We can 27 not afford to go through 36. We choose four months 28 every year, one box for each year and provide it to us. 25 1 And that for September 2003, June 2002, 2 February 2004 and November 2001 -- I make four boxes. I 3 went to the Board of Equalization. Exhibit No. 7 has a 4 receipt, which I provide those boxes to Board of 5 Equalization. 6 And after that, eight months later, they ask me 7 another four months, which is I provided to my attorney 8 office in San Jose. Michele Fei came over and reviewed 9 that. 10 After that, on 2006, they asked me another six 11 boxes. So, I pulled -- I am sorry, four boxes. I 12 provided in my office in Campbell Technology. And three 13 months after that they ask another four months boxes. 14 So, I pulled almost 16 boxes of the report. On those 15 report every single day is on cash register and all this 16 sale -- everything is in there. No one of owner was 17 running the business behind the cash register so they 18 cannot avoiding any charges or any sales. 19 And this $321,000 lien on my on -- lien on my 20 property it is was was on the property. The LLC is 21 owned the property. 22 Right now I have two issue with the Board of 23 Equalization and Franchise Tax Board. Franchise Tax 24 Board at close-up my escrow took $48,000 of my money, 25 said this business is LLC. 26 And Board of Equalization saying no, this 27 business is a partnership. All my tax returns, all my 28 sales tax say A & M Gas, Ali Amidy. I do not have any 26 1 sales tax record show under LLC. So, I have another 2 issue with the Board of Equalization, which is we have 3 another fight, it's going to be another two months, 4 which is they take $48,000 of my money on the base of 5 the business was LLC. 6 At this time I don't know, even my business is 7 LLC or partnership. If it's LLC, why didn't treat me as 8 LLC? It's an LLC, limited liability corporation. If 9 it's individual or partnership, why they took $48,000 of 10 my money at the closing of escrow? 11 So, altogether I have -- they took about 12 $280,000 my money since 2004. And they keep it in the 13 escrow company and I have no right to use that money. 14 On top of that, they are trying to charge me 15 for all of the interest and penalty and negligent? What 16 negligent? 17 I have paid my taxes. I made an amendment to 18 the taxes. I made a mistake. Board of Equalization, 19 after two years, look at all this monthly report, they 20 never come back, 21 "Mr. Amidy, you doing the calculations wrong. 22 You have to do this." 23 Never ask me to collect the money. Then I went 24 and I find out it was a mistake. They did it. So, I 25 make amendment to 36 month tax return, including my 26 partnership and the sole ownership on May 2004 and I 27 went to the Board of Equalization and give them $107,000 28 check, cashier check. 27 1 And after that, then they let everything came 2 back to me saying, 3 "There is mistake again in this." 4 After eight, ten months they told me, 5 "Oh, you make little bit mistake too, you 6 should pay little bit more money." 7 I said, "Why never nobody even write me letter 8 say, 'Okay, you're doing the tax wrong. So, we 9 have to to correct it.'"? 10 MS. OLSON: Time has expired. 11 MS. YEE: Okay, thank you very much, Mr. Amidy. 12 Questions, Members? 13 Mr. Leonard? 14 MR. LEONARD: Thank you, Madam Chair. 15 I have a few questions, mostly for the 16 Department. 17 In your argument in asserting negligence you 18 cite extensive business experience. Taxpayer said 19 they've never been audited in any of those businesses by 20 the Board of Equalization. 21 Do you concur with taxpayer's statement on 22 that? 23 MR. LAMBERT: At the time that these audits 24 started, that statement's correct. 25 MR. LEONARD: We generally let a first audit 26 with understatement go without negligence, why -- even 27 with some business history -- is there some other reason 28 to -- 28 1 MR. HANKS: Mr. Leonard, I think -- 2 MR. LEONARD: -- strengthen your argument as to 3 why there's negligence here? 4 MR. HANKS: Mr. Leonard, you're correct, in a 5 lot of instances we don't assert a negligence penalty 6 for a taxpayer on a first audit. 7 However, when there is circumstances that 8 indicate Petitioner was negligent in reporting or 9 negligent in maintaining records, then that recommended 10 penalty is recommended. That's what we find in this 11 case. 12 Petitioner didn't have complete records. The 13 size of the understatement was quite large. And the 14 record indicated Petitioner was associated with ten 15 other business and so appeared to be a knowledgeable 16 business person. 17 MR. LEONARD: Is it they didn't have complete 18 records or he didn't offer them up immediately and you 19 got them later? 20 I am hearing kind of different versions. 21 MR. LAMBERT: Both. They didn't -- the 22 taxpayer's correct in that initially we sent out the May 23 2004 letter, we asked for sales tax work sheets, for 24 income tax returns and various other things. 25 MR. LEONARD: Right. 26 MR. LAMBERT: We didn't ask for the detail 27 information -- 28 The taxpayer's incorrect in terms of when we 29 1 started this audit. The audit was not started until 2 September 1st of 2004. And there were numerous delays 3 that were -- that were caused by the taxpayer instead 4 of -- 5 MR. LEONARD: I guess maybe -- are there any 6 records that you still would like to see -- 7 MR. LAMBERT: No. 8 MR. LEONARD: -- that should exist? 9 MR. LAMBERT: No. 10 MR. LEONARD: No, you eventually got everything 11 you needed? 12 MR. LAMBERT: That is correct. 13 MR. LEONARD: So, there is not a negligence of 14 absence of records? 15 MR. LAMBERT: Ultimately we received all of the 16 records that we -- 17 MR. LEONARD: Okay. 18 MR. LAMBERT: -- requested. 19 MR. LEONARD: Can you help me on the negligence 20 again? 21 MR. LAMBERT: You have the size of the 22 liability. 23 MR. LEONARD: Just the size of the 24 understatement? 25 MR. LAMBERT: That's pretty much -- the size of 26 the liability, even if he didn't have experience, is 27 still significant. 28 When you take the difference between the 30 1 recorded and reported figures is 1.9 million, which 2 is -- 3 MR. LEONARD: I get that. I just -- I wanted 4 to make sure that was what your entire argument was 5 because I'm -- some parts are unclear. 6 Switching to the escrow, did you get the escrow 7 documents from the escrow company? I mean, have you -- 8 MR. HANKS: Mr. Leonard -- 9 MR. LEONARD: -- was their money -- did you see 10 a document that said there was not money withhold for 11 the Board of Equalization in the sale of fixtures or you 12 saw there was money withheld but you never got it 13 or something else? 14 MR. LAMBERT: I received -- there was a comment 15 in the audit working papers that they talked to -- that 16 the auditor had talked to person in Compliance and they 17 had stated that the escrow was released. 18 MR. LEONARD: I'm sorry, what does that mean 19 "escrow released"? 20 Was a check cut to the Board of Equalization 21 for the sales tax on the fixtures? 22 MR. LAMBERT: Yes. 23 MR. LEONARD: So, that's not issue? 24 MR. LAMBERT: Well, it -- we've received the 25 money, but in order to -- to obtain the money, we have 26 to bill it in order to match up the two. 27 So, in other words, we've received the money, 28 but he never reported it as taxable. So, in effect, 31 1 what we're going to do is issue the Notice of 2 Determination and then that -- the money will attach to 3 that notice. 4 MR. LEONARD: Does that show on the 5 documents -- Appeals Division documents of payment of 6 122,000 and then payments of 4900? 7 Is that -- is that credited already? Or does 8 the taxpayer not know of that credit that's about to 9 come? 10 MR. LAMBERT: One second. 11 MR. LEONARD: Sure. I understand what the 12 process on escrow is, but I am not sure how it's 13 credited in here. 14 Taxpayer appears to think that -- 15 MR. LAMBERT: The 49 -- 16 MR. LEONARD: -- he's already paid. 17 MR. LAMBERT: -- I believe it was $4950, that 18 the payment was made. 19 MR. LEONARD: Okay. 20 MR. LAMBERT: It was done through the -- it was 21 done through the sole proprietorship because they're the 22 ones that -- that was the only sale that was taxable 23 and -- 24 MR. LEONARD: 309681, audit number, case 25 number? 26 MR. TUCKER: Yes. 27 MR. LEONARD: So, Mr. Amidy, you've been 28 credited for a $4950 payment through that escrow is what 32 1 I think they're saying. 2 MR. AMIDY: There were two payments was made 3 from the -- one payment came from escrow company and one 4 payment I have a copy of the cashier check, which is 5 Exhibit A. 6 MR. LEONARD: How much -- two payments? 7 MR. AMIDY: $245.86 was paid on May 13, 2005. 8 MR. LEONARD: Okay. 9 MR. AMIDY: And directly that was my cashier's 10 check because they say, told me, "You are short $1200 11 some dollars." 12 And I made that cashier's check, which is not 13 showing on this credit. But I sent it and on the bottom 14 of check it says, "State Board of Equalization for 15 portion of the $75,000 equipment taxes."? 16 MR. LEONARD: You said there was a second 17 check? 18 MR. AMIDY: That was the second check for 19 $1245. 20 MR. LEONARD: 1245, okay. 21 MR. AMIDY: And then I did -- 22 MR. LEONARD: Department, do you know about 23 those two checks? 24 MR. HANKS: Mr. Leonard, in looking at these 25 two checks I note that the second check, in particular 26 the amount for $4375, that actually denotes a different 27 account number than is in question today. 28 So, this relates to an entirely different -- 33 1 MR. LEONARD: Did you check what account number 2 it is? 3 MR. HANKS: No, this is the first time that 4 we've seen this. 5 MR. LEONARD: Okay. Fair enough. 6 We discussed with the Board about how we 7 reconcile pinning that down. 8 In looking over the issue of delay, I looked at 9 the calendar and I kind of lost track after -- actually, 10 on appeal. 11 What -- what happened between today and 12 July 10th, 2007 at the second Appeals conference? 13 What's the two year delay? That's the longest real 14 delay without any interaction. 15 MS. YEE: Yeah, Mr. Levine, do you have -- 16 MR. LEONARD: Mr. Levine, do you have any -- 17 MR. LEVINE: There was -- since you're not 18 asking between the two conferences, which was because 19 the taxpayer agreed to provide more documentation -- 20 MR. LEONARD: Yeah, that's why I said that. 21 MR. LEVINE: -- it went back and forth. 22 By the time the -- it looked like, perhaps it 23 was ready. The first conference holder was on leave. 24 So, the taxpayer was offered an opportunity to have a 25 second conference with a different conference holder and 26 there was still more back and forth with records going 27 back and forth. And that continued even after -- in 28 September 2006 we had Petitioner's representative asking 34 1 for more time and submitting more documentation. 2 July 2007, we're -- we had the conference. At 3 the conference it was agreed Department would meet with 4 the taxpayers. So, there was more delay at that time as 5 they were going back and forth trying to resolve it. 6 August 2008, Appeals to the District office 7 saying, 8 "We received more documents from Petitioner, 9 request for relief and other items and please 10 review and comment." 11 And then in September, the last document I 12 had -- I'm sorry, September 2007, from Appeals to 13 Mr. Jeter saying, 14 "Received a memorandum from the Department and 15 the taxpayer has a month to respond." 16 At the end of October we received another 17 letter, which we sent -- from Petitioner's 18 representative, which we sent to the District and asked 19 for comments. 20 So, there was a continuing back and forth with 21 more documentation and arguments that we felt we wanted 22 each side to respond to. 23 MR. LEONARD: What happened after July of '07? 24 That's what I am asking. 25 MR. LEVINE: Well, this is -- we were still 26 getting information and arguments from Petitioner and 27 responses from the Department. 28 MR. LEONARD: So, the second Appeals conference 35 1 didn't really close July of '07; is that correct? 2 MR. LEVINE: That's correct. 3 MR. LEONARD: Okay. 4 MR. LEVINE: It wasn't what we call ready to 5 write at that time because we were still getting more 6 arguments from Petitioner. 7 We had asked -- we had offered them the 8 opportunity to request relief of the amnesty interest 9 penalty, I believe it is, and that was, I think, in the 10 first Appeals conference, but we kept reminding him and 11 I think we finally got it later. So -- 12 MR. LEONARD: I'm just looking, trying to get 13 the gap, Mr. Packey, is there the gap now between now 14 and the'07? 15 MR. PACKEY: I just want to reference the 16 letter -- the Department's letter of February 27, 2007 17 stating that there was a delay and there was going to be 18 a delay -- appeal proceedings were deferred until August 19 2000 -- August 26th of 2007. 20 And that was for the -- for pending final 21 determinations of issues regarding LLC for -- 22 MR. LEONARD: And was it determined in August? 23 MR. PACKEY: -- these statutes currently in 24 appellate court. 25 MR. LEONARD: Did you get a final assessment in 26 August of '07 then? 27 MR. AMIDY: No. 28 MR. LEONARD: What happened after that? 36 1 MR. AMIDY: After that I been calling Board of 2 Equalization asking what -- what -- why I don't get 3 anything? What is my appeal? Why you relieve -- why 4 request for relief of penalty and interest. 5 I said relief of penalty and interest so I can 6 pay the balance. Never get back to me. 7 I was calling attorney's office, never -- 8 delaying month, two months, three months and they never 9 answered me. 10 MR. LEONARD: You were in contact with 11 Department? 12 MR. AMIDY: I was contacting because I don't 13 have no other document to show. I have all of the 36 14 boxes -- 15 MR. LEONARD: Okay. 16 MR. AMIDY: -- in my possession. 17 MR. LEONARD: Department, can you help me? 18 What happened after July of '07? 19 MR. HANKS: Yes, Mr. Leonard, we wanted to look 20 at this as well. 21 And, so, we put together a chronology of all of 22 the contacts that we've had with the Petitioner. There 23 have been numerous delays by the Petitioner. We can 24 enumerate those from May of 2004 when -- 25 MR. LEONARD: I'm actually conceding -- giving 26 you that. 27 After'07 though? 28 MR. HANKS: Even after -- even after July of 37 1 '07, after the Appeals conference was held, we had memos 2 from the Appeals conference holder to the auditor, 3 directing the Department to look at additional 4 information. 5 We do that in the following month. A letter is 6 then written from Appeals to the taxpayer's attorney in 7 September allowing the Petitioner additional time to 8 review our memo. Again communication with the attorney, 9 he's disagreeing with the audit results and negligence 10 penalty, amnesty interest penalties. 11 A memo is issued from Appeals to the Department 12 asking us to respond to an audit question, which we do. 13 Follow-up in in December of '07 from the Petitioner's 14 attorney to the Appeals conference holder asking if a 15 different audit method can be used. 16 Then Mr. Jeter notifies Appeals that he's no 17 longer representing the taxpayer. That occurs in March 18 of 2008. 19 Same month, the Appeals Division prepares their 20 Decision & Recommendation. Appeals reviews a letter 21 from a new attorney, now indicating that he represents 22 the Petitioner. Taxpayer then claims that their ATM 23 deposits included in the federal income tax gross 24 receipts. That occurs in May of '08. We go out into 25 the field in that month to see if that's the case. 26 We contact the Petitioner in June of '08. We 27 make numerous -- we attempt to make numerous contacts 28 with the Petitioner from June of '08 through December of 38 1 '08. Petitioner -- neither Petitioner nor their 2 representative return our contacts. 3 Finally, the assignment is referred back to the 4 Petition Department in August of '08 because we haven't 5 been able to -- to talk to the Petitioner. 6 Auditor requested specific delays to review 7 Z-tapes, that were then provided in late of 2008. In 8 November of '08 the Department holds another meeting 9 with the taxpayer. And at that time Petitioner wanted 10 to dispute the percentage of purchases used in the 11 audit. 12 In December of '08 received partial requested 13 documents from the Petitioner. And then a week later, 14 again in December of '08, Petitioner raised new issues 15 regarding the assets that is assessed in the audit. 16 And then our re-audit was submitted in 17 December 10th, 2008. 18 MR. LEONARD: Okay, thank you. 19 One last question, if I may? A new issue I 20 hadn't read before. 21 Taxpayer told the story of liens, some 22 property, some escrow or some cash accounts being liened 23 by Board of Equalization. 24 Did we do that? 25 MR. HANKS: We don't -- we do't have any 26 knowledge of that. 27 This isn't a final liability. 28 MR. LEONARD: It's not final? 39 1 MR. HANKS: It's not a final -- 2 MR. LEONARD: I didn't hear you served a 3 jeopardy assessment, so -- 4 MR. HANKS: No, no, it wasn't a jeopardy 5 assessment and this wasn't a final liability. 6 So, I can only imagine that Petitioner is -- 7 MR. LEONARD: So, you're not freezing any of 8 his money? 9 MR. HANKS: No. The Petitioner is referring to 10 another account that he has a business relationship with 11 or -- it doesn't relate to this account. 12 MR. LEONARD: Nothing that's -- 13 MR. HANKS: No final liability. 14 MR. LEONARD: Okay, thank you. 15 MS. YEE: Okay, thank you, Mr. Leonard. 16 Other questions, Members? 17 Yes, Mr. Horton, please? 18 MR. HORTON: Just for a point -- just for a 19 point of clarification, there seemed to be some 20 testimony that there was funds available in an escrow 21 account and that these funds are either currently 22 available or they were applied to the audit liability. 23 Can someone give me a little clarification on 24 that? What I'm interested in is when the funds were 25 available? And if there are current -- currently funds 26 available? 27 And from the BOE staff, if those funds are 28 available, could we have -- is that in and of itself 40 1 provide relief to the taxpayer relative to interest once 2 those funds are made available to us? 3 MS. YEE: Mr. Amidy, why don't you respond -- 4 MR. AMIDY: Yes. 5 MS. YEE: -- first, just to get the 6 clarification before us? 7 MR. AMIDY: I'm a business broker. Also I'm a 8 real estate agent broker since 1986. I have sold so 9 many businesses besides gas station. Every business, is 10 that gas station or any business you sell has equipment 11 and furniture. 12 The escrow company has to keep that money for 13 the tax, whatever tax is 8 and quarter or 8 and a half, 14 whatever tax is, they have to collect it from the buyer 15 and credit it to the seller and hold that money and pay 16 directly to Board of Equalization. 17 In my case on the closing escrow on May 26th, I 18 have received $6,157.50 credit from the buyer and then I 19 I get debit from my account $6,187.50. That money 20 supposed to be paid to the Board of Equalization and 21 never paid. 22 I don't have no answer for today why they 23 didn't pay it. I went to the escrow company yesterday 24 and talked to the escrow holder. Escrow holder's moved 25 to Phoenix, Arizona, so there is not there and there is 26 another lady, Christy, told me, 27 "Mr. Amidy, we don't know why. We usually keep 28 this money and we send it directly to Board of 41 1 Equalization." 2 MR. HORTON: What's -- who requested that 3 escrow hold the money? 4 MR. AMIDY: The escrow holder was Deborah 5 Limon. 6 MR. HORTON: No. Did the Board send a document 7 to the escrow requesting these funds be held or did you 8 ask -- 9 MR. AMIDY: No, this is particular base of the 10 escrow company should put back together based on $75,000 11 allocation of the purchase price for equipment and 12 fixtures. 13 MR. HORTON: So, they're holding the funds just 14 for the potential tax on the sale of fixtures and 15 equipment? 16 MR. AMIDY: Exactly. 17 MR. HORTON: And just says it's a standard 18 practice? 19 MR. AMIDY: A standard practice, they're 20 supposed to pay directly to Board of Equalization. It's 21 all of my -- all of the seller hands, so, I could not do 22 anything about it. 23 So, they deduct it from me, usually they deduct 24 and I'm paid. 25 MR. HORTON: Well, when but the funds were 26 eventually disbursed. Who did they go to? 27 MR. AMIDY: Disbursed $4,950. 28 MR. HORTON: Where? 42 1 MS. YEE: Out of how much in the account? 2 MR. AMIDY: And $6,185, that's what I put down, 3 the other 120 -- $1245.86 to match the 75 -- that 4 6,187.50. 5 When the Board of Equalization called me, say, 6 "Hey, we have not received the equipment. 7 Where is the tax for the equipment?" 8 I said, "I have to check with the escrow 9 company." I called the escrow company, escrow company 10 said, "We already sent $4,950." 11 And I said, "Why?" They said, "We don't know." 12 So, the Board said, "You are short $1245.86." 13 I went immediately, got the cashier's check and 14 send it to the escrow -- to the Board of Equalization. 15 I went, matter of fact, there and handed to them, the 16 officer. 17 MR. HORTON: So, through no fault of yours, the 18 funds were there, they were available, but for some 19 reason the escrow didn't send the funds? 20 MR. AMIDY: Yes. 21 And also regarding that, I want to make point, 22 if I can, regarding the delay all of my paperwork. I 23 have 36 boxes done on January 22nd of 2005 ready to go 24 to the Board of Equalization. 25 There was no other document I had. I already 26 provide all of the sales tax, gas invoices, bank 27 statements, everything to Board of Equalization on May 28 2004. And the only I have in my possession was the 43 1 boxes. 2 There are no other -- no other information I 3 have so can provide it for delay all these things. All 4 this delay was done by Board of Equalization. They 5 could ask me for 36 boxes. After eight months, ask me 6 four boxes and another eight months, ask me another four 7 month and another eight month, ask me four months. 8 MS. YEE: Okay. 9 MR. AMIDY: This audit should be done, finished 10 in 2005, maximum. 11 MS. YEE: Okay. We understand your position on 12 that. 13 Mr. Horton? 14 MR. HORTON: Thank you, Madam Chair. 15 Question of the Department, how many requests 16 for additional documentations did we make? And when did 17 we make them? 18 MR. LAMBERT: We made numerous requests for 19 additional documentation. 20 We made one on -- when the audit started on 21 May 26th, I'm sorry, there were -- there was a letter 22 sent out on May 26th, which was the audit engagement 23 letter asking for records. 24 The -- 25 MR. HORTON: Was that just a general statement 26 of records? 27 MR. LAMBERT: Well, no. There were specific 28 records that were requested. 44 1 MR. PACKEY: It's in your exhibits. 2 MR. AMIDY: Exhibit 3. 3 MS. YEE: Okay. 4 MR. LAMBERT: And at that time the sales tax 5 worksheets were requested, the income tax returns, 6 profit and loss statements. 7 MR. HORTON: I see that. 8 MR. LAMBERT: But the sales -- 9 MR. HORTON: Were these documents made 10 available? 11 MR. LAMBERT: They were. 12 MR. HORTON: And, so, subsequent to this 13 request, you asked for Z-tapes and other information? 14 MR. LAMBERT: That is correct. 15 And when the audit was first initiated, in 16 other words, they went out to take a look at these 17 particular records, was on September 1st. 18 They -- the auditor went to the taxpayer's 19 CPA's office and at that time recognized that the detail 20 records were not there, called Mr. Amidy on the phone 21 and requested those records. 22 And Mr. Amidy told the auditor that those 23 records had been destroyed out of ignorance. 24 MR. AMIDY: That's no true. 25 MR. HORTON: So, in the original record we 26 didn't ask for these -- we didn't ask for supporting 27 documents? 28 MR. LAMBERT: In the May 26th letter we did not 45 1 ask for the detail records. 2 MR. HORTON: So, why would they be there if we 3 didn't ask for them at the accountant's office? 4 MR. LAMBERT: They wouldn't necessarily be 5 there. 6 Yeah, if we didn't -- if we didn't request 7 them, there would be no reason why the taxpayer would 8 provide them at that time. 9 The auditor was a new auditor and then 10 recognized at the first day that that was an issue and 11 then followed up with it immediately on that particular 12 day. 13 So, if those records were available, they 14 should have been provided within a short period of time. 15 In other words, they started on September 1st, that 16 request -- verbal request for those records were made 17 September 1st. And they were not provided until much 18 later. 19 MR. HORTON: Was the request made to have those 20 documents sent over to the CPA's office? 21 MR. LAMBERT: Yes. And what happened was that 22 Mr. Amidy told the auditor that those records had been 23 destroyed. 24 MR. AMIDY: That's not true. 25 MR. HORTON: Any request subsequent to that? 26 MR. LAMBERT: Yes. Again the auditor met with 27 the -- with her supervisor in October. 28 And I will get the -- I will get -- on 46 1 October 12th, 2004 the auditor again requested the 2 supporting documents that were not previously 3 provided -- sales summary and their source documents. 4 MR. PACKEY: There's-- excuse me, there is 5 correspondence in e-mail, actually, from the auditor to 6 the taxpayer dated October 14th of 2004. And that -- in 7 that e-mail she requests some supporting documentation, 8 but again no request for the Z-tapes. 9 MR. AMIDY: I have provide the monthly report, 10 36 monthly report is big pages of about 24 inches wide. 11 I provide all those monthly statement to State Board of 12 Equalization to Michele Fei. 13 When Michele Fei start this audit, she was 14 brand-new auditor. She didn't know what she's doing. 15 She come to the office. I provide all of the documents 16 to her. 17 And then she said she's going to vacation for 18 two weeks in Hawaii, whatever, and when she come back 19 she's going to meet me. 20 After month or so, I meet her in the office. 21 She came and she said, "I come up with $17,000 tax you 22 owe to Board of Equalization." 23 And I said, "Okay, how did you put the number 24 together? I will pay." 25 And then she went gone and five or six months I 26 never heard anything. I was calling concerning Board of 27 Equalization and, finally, we have the meeting back in 28 November in the State Board of Equalization with my 47 1 accountant, with Michele Fei and District Manager. We 2 sit there and at that time the first time they said, "We 3 want Z-tape." 4 When I told them -- I said, . 5 "I have to find through 36 boxes. I don't know 6 I can collect all this for you by tomorrow or 7 next day, I have to go collect this because 8 some of them was keeping in the warehouse and 9 storage room and some of them was keeping in 10 the -- at gas station." 11 MS. YEE: Yeah, hang on. 12 MR. HORTON: On the -- you indicated in part of 13 your testimony that the auditor notified you that you 14 had a potential $17,000 tax liability? 15 MR. AMIDY: That's only thing, she said,. 16 "You have a $17,000 tax liability." 17 MR. HORTON: Did you receive anything in 18 writing? 19 MR. AMIDY: No. 20 MR. HORTON: Is the Department disputing that? 21 first time you heard about it? 22 MR. LAMBERT: Yeah. Well, that's not the first 23 time I heard about it but -- because he's argued that 24 point before, but we have no knowledge of that. 25 MR. HORTON: Did we ask the auditor? 26 MR. LAMBERT: No, it's not in any -- there is 27 no comments made. 28 MR. HORTON: He said it was verbal. Did the 48 1 auditor attest that they had actually told them at some 2 point in the process that they thought the liability 3 would be 17,000? 4 MR. LAMBERT: Did we -- did the -- was the 5 auditor asked that, is that your question? 6 MR. HORTON: Well, do we know? I don't know. 7 MR. LAMBERT: Do we know if she -- we do not 8 know that. 9 I don't know whether she said that or not. 10 There is no indication from the -- all of the audit 11 working papers that I've looked at and all of the notes 12 that are made in the audit that that ever would have 13 been said. 14 There were substantial differences that she 15 noted within days of that September 1st, that there was 16 a million dollars differences between the sales tax 17 returns and the income tax returns. And I don't know -- 18 and she basically noted over a million dollars in 19 differences. 20 I don't know how you can get to $17,000 from 21 over a million dollars in differences. 22 So, that appears to be inconsistent. 23 MR. AMIDY: I can answer. 24 MR. HANKS: Mr. Horton, if I could add too, 25 just a couple of points? 26 The chronology that we're reading from is 27 information that comes from what we call you a 414 Z 28 record that we maintain showing all of the contacts that 49 1 we've had with the Petitioners or their 2 representatives. 3 MR. HORTON: Do we have that? 4 MR. LAMBERT: I have a summary. 5 MR. HANKS: We do have a summary. 6 MS. MANDEL: Do you have a copy of this? 7 MS. YEE: Do you have a copy. 8 MR. HANKS: We did actually make copies. 9 MR. LAMBERT: I have a summary of all of the 10 contacts -- well -- 11 MR. HANKS: Yes. 12 MR. LAMBERT: -- most of the contacts, there is 13 eight pages. 14 MS. MANDEL: It might help if he sees it than 15 rather hear it. Sometimes it's easier to have the 16 document in front of you. 17 MS. YEE: We'll give you a chance, Mr. Packey, 18 let us kind of continue this train of thought for a 19 moment. 20 MR. HANKS: Thank you. 21 So, I think it night be helpful, actually, in 22 looking at some of the summaries of contacts, especially 23 the notes regarding the summary of contact that the 24 auditor writes about when they initially contacted the 25 Petitioner. 26 And I note that that's dated May 26th, 2004. 27 You'll see that even in the -- that first conversation 28 that we have with the taxpayer, the auditor was alerted 50 1 that the Petitioner was upset with being audited. He 2 asked whether or not being selected for audit was a 3 joke. 4 Apparently other -- other items were mentioned 5 and it was at that point that the auditor discussed the 6 case then with her supervisor. 7 And afterward a copy of the engagement letter 8 was sent to the Petitioner that identified the records 9 that we wanted to look at initially. But then it also 10 identified that additional information may be requested. 11 And that's -- that's somewhat what happened in 12 this case, that the additional records were asked for at 13 later times. 14 Mr. Amidy indicates in conversations in June of 15 '04 that he's very busy, he doesn't have time to prepare 16 the documents for the auditor. He asked for a two month 17 delay. 18 MS. YEE: Hang on a minute, Mr. Hanks. 19 Mr. Packey, you will get a chance. So, please 20 stop waving your hand. You'll have an opportunity. 21 MR. PACKEY: Thank you. 22 MS. YEE: Continue, please? 23 MR. HANKS: in June of 2004, Mr. Amidy 24 indicates that he's going to be leaving for the country 25 for two months. The auditor is aware of that. And the 26 auditor requests that the Petitioner sign a waiver to 27 keep these these audit periods open. 28 Mr. Amidy is faxed a copy of a waiver document. 51 1 He indicates that he is going to talk to the auditor, 2 but never does. The auditor, however, follows up with 3 regular telephone calls to the Petitioner. Ultimately, 4 the Petitioner ends up talking to the District 5 Administrator and resolving that they'll prepare a 6 hybrid waiver. They didn't want to sign the waiver that 7 the auditor had supplied, he wanted to limit it to three 8 months instead of the typical six months. But, 9 nevertheless, that is signed quite late, in July of 10 2004. 11 You can see throughout that with our contacts 12 with Mr. Amidy and then later with his representatives, 13 there are numerous delays. Petitioner has asked for 14 numerous delays in supplying records and making 15 arguments. All the while, the auditor, of course, is 16 mindful that she needs to complete her assignment. 17 It's only in September of 2004 when the audit 18 really gets started. And the audit comments indicate 19 that in addition to the records requested in the 20 original engagement letter, the auditor asked for the 21 additional records that are going to be necessary to 22 complete the audit. 23 And actually very soon afterwards, the auditor 24 is able to finally finish the audit. It's only a few 25 months after that the audit is completed. 26 So, it looks as though it took the Sales and 27 Use Tax Department staff a period of ten months, 28 approximately, from the time that audit was originally 52 1 assigned to the time that the Notice of Determination 2 was issued. 3 But it looks like many of these months of 4 delays are attributable to the Petitioner for one reason 5 or another. 6 MR. HORTON: And, Madam Chair? 7 MS. YEE: Please. 8 MR. HORTON: December of 2005, there is an 9 indication that there was conference held? 10 MR. LAMBERT: Yes. 11 MR. HORTON: Was the taxpayer notified at that 12 time what the liability was? 13 MR. LAMBERT: They had been notified. 14 MR. HORTON: At that point? 15 MR. LAMBERT: Sure. 16 MR. HANKS: I should have shared too that at 17 the time that the auditor had completed their work, that 18 the Petitioner would have been given a copy of the audit 19 report that would have detailed the areas of 20 transactions that we were proposing to tax. 21 They would have received a schedule that showed 22 the proposed tax, interest and penalty. 23 MR. HORTON: When the taxpayer was notified of 24 the interest and penalty audit liability, was he told 25 that he had the option of paying the tax to stop the 26 interest? 27 MR. HANKS: Yes, yes. 28 MR. HORTON: And the taxpayer chose not to? 53 1 MR. AMIDY: No. They asked me -- they never 2 asked me to pay anything, as soon I find out they come 3 up with those numbers, I amended to tax return, I was -- 4 myself I went and I will get the cashier's check and 5 I'll pay that $107,000 difference to amendment of tax 6 return. 7 MR. HORTON: I don't think your client's 8 understanding the question. 9 At the exit con, the auditor notified the 10 taxpayer of the liability and that he had the option at 11 that point of paying the interest in order to stop the 12 liability from incurring, I mean the interest accruing. 13 Is there a reason he chose not to at that 14 point? 15 MR. PACKEY: I believe he disputed the amount. 16 He still disputed the amount of the audit. 17 MR. HORTON: Okay. 18 MS. YEE: Okay. Mr. Packey, your observations 19 about the contact summary? 20 MR. PACKEY: I just wanted to add that -- 21 according again to the General Audit Procedures 0403.18, 22 it states that, 23 "Significant verbal contact should be confirmed 24 in writing by the auditor." 25 And in this case this audit lasted five years. 26 The Department is -- that the delays were all based upon 27 the taxpayer not providing the documents, but during the 28 five years I have only been able to find two passing 54 1 references to the taxpayer not providing documents. 2 So, I just wanted to add that. 3 MS. YEE: Okay, all right. 4 Department and then maybe Mr. Packey or 5 Mr. Amidy. 6 I don't see any reference here to the amnesty 7 program in terms of the summary of contacts. What took 8 place around the time of the amnesty? 9 MR. LAMBERT: During the -- there should have 10 been something -- well, there was something written in 11 the meeting in January of 2005 -- 12 MS. YEE: Okay. 13 MR. LAMBERT: -- that they had with the Oakland 14 DPA, Terry Paler (sic). At that time Mr. Amidy met with 15 her and the amnesty was explained to him. And then it 16 was followed up with a letter -- or, actually, the 17 report of discussion was sent to him which told them 18 that the need to file for amnesty by March 31st of 2005 19 and that he would have to make payments or enter into a 20 payment agreement and file amended returns. 21 And he didn't do that. 22 MS. YEE: Okay. But the amount of the 23 liability was known at that time? 24 MR. LAMBERT: It was. 25 MS. YEE: Okay. 26 All right, yes, Mr. Amidy? 27 MR. AMIDY: I went to the payment plan. And I 28 make three payment. 55 1 Fred Belus and Rita Belus make three payments. 2 And also I filled out the amnesty form on March 30th and 3 sent it to State Board of Equalization. 4 And we make payments -- I make three payments, 5 which is in the -- show on this form I received, they 6 show all those credits, $3,000 back on 7-01-05 and $400 7 7-22-05, $400 on 8-26-05 and 9 -- $1,500 payment was 8 made on September 1st, 2005. 9 So, we went to this payment plans. And 10 after we not -- we go to that and then my partners 11 stopped making any more payments. 12 MS. YEE: Okay. 13 MR. AMIDY: Because I already paid my share is 14 $120,000 I pay, which is I shouldn't -- half of that 15 should be mine. I paid that. 16 Then I asked my partner, 17 "Your guys responsible for rest of the tax. 18 You should be taking care of this on the 19 payment plans." 20 They make two, three payments and then stop, 21 and never make any payments. 22 MS. YEE: Okay. 23 MR. AMIDY: To me I already paid more than what 24 I supposed to pay for my taxes. 25 MS. YEE: We understand. 26 Okay, Mr. Lambert, the disposition of the 27 payments and the amnesty application? 28 MR. LAMBERT: Yeah. Well, this is what 56 1 happened -- and I think what happened is the taxpayer 2 became confused when he was notified before amnesty of 3 his ability to file for amnesty, he didn't do that. 4 And, in the meantime, the Appeals conference 5 was held. And the conference holder sent the taxpayer a 6 letter dated March 7th of 2006 which basically says, 7 "If you want to -- if you want to get relief 8 from the amnesty penalties, you need to sign 9 the request and turn it back in." 10 And I think what happened was that the taxpayer 11 saw March 31st and thought it was March 31st of '06. 12 And, so, he files the amended returns, I believe it was 13 either March 30th or March 31st of 2006, which was a 14 year -- basically a year late. 15 And, so, I think he just -- when he was given 16 the opportunity to file it, he didn't take it and then 17 he became somewhat confused by the conference holder's 18 letter. 19 MR. HANKS: We should add, Ms. Yee, too, that 20 at the time of our reported discussion of audit results 21 with the District Principal Auditor, with Miss Paler, 22 this is January 24, 2005 that amnesty was discussed. 23 And this report, of course, is provided to 24 Petitioner. And that's included in Miss Paler's 25 report. 26 MS. YEE: Okay, very well. 27 MR. HORTON: Could I clear that up? 28 MS. YEE: Yes, Mr. Horton? 57 1 MR. HORTON: Is it the Department's belief that 2 an action on our part caused the taxpayer not to file 3 for amnesty? 4 You said the taxpayer was confused as a result 5 of some action? 6 MR. LAMBERT: The taxpayer became confused a 7 year after amnesty ended. 8 MR. HORTON: Okay. 9 MS. YEE: Okay. Other questions, Members? 10 Mr. Amidy, did you have one final comment? 11 MR. AMIDY: I want to -- 12 MS. YEE: Please speak into the microphone. 13 MR. AMIDY: I want counsel provide me all these 14 delayed letters I received for providing document. 15 I have only two, three letter for providing 16 document. The counsel saying providing letter on months 17 and months and months. And I never have any of those. 18 I don't know who talk on verbally. Board of 19 Equalization always writing the letter to me and 20 request. I cannot go on the base of this four -- this 21 pages, which is they have been contact me for document. 22 I never received any letter from the Board of 23 Equalization except those three letters I have for 24 documents. 25 That's all I have. All of the rest of the 26 document was -- I provided to the Board of Equalization. 27 Board asked me to provide it. 28 MS. YEE: Okay. Well, it sounds like at this 58 1 point all of the documents that you have have been 2 provided and the Department has everything they need -- 3 you had in your possession. 4 Okay, hearing no other questions, is there a 5 motion? 6 MS. MANDEL: Take the matter under submission. 7 MS. YEE: Motion by Ms. Mandel to take the 8 matter under submission. 9 Second by Mr. Horton. 10 Without objection, that motion carries. 11 Thank you very much, gentlemen. We will 12 discuss your matter later today. 13 MR. PACKEY: Thank you. 14 MS. YEE: And send you written notice of our 15 decision. 16 Thank you. 17 ---o0o--- 18 19 20 21 22 23 24 25 26 27 28 59 1 REPORTER'S CERTIFICATE 2 State of California ) 3 ) ss 4 County of Sacramento ) 5 6 I, JULI PRICE JACKSON, Hearing Reporter for the 7 California State Board of Equalization certify that on 8 OCTOBER 6, 2009 I recorded verbatim, in shorthand, to 9 the best of my ability, the proceedings in the 10 above-entitled hearing; that I transcribed the shorthand 11 writing into typewriting; and that the preceding pages 1 12 through 59 constitute a complete and accurate 13 transcription of the shorthand writing. 14 15 Dated: November 12, 2009 16 17 18 ________________________ 19 JULI PRICE JACKSON 20 Hearing Reporter 21 22 23 24 25 26 27 28 60