BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 450 N Street, Room 121 Sacramento, California REPORTER'S TRANSCRIPT OCTOBER 6, 2009 FINAL ACTIONS ITEM B 1 Reported by: Beverly D. Toms No. CSR 1662 1 1 2 P R E S E N T 3 4 For the Board Betty Yee of Equalization: Chair 5 Jerome E. Horton 6 Vice-Chair 7 Bill Leonard Member 8 Michelle Steel 9 Member 10 Marcy Jo Mandel Appearing for John 11 Chiang, State Controller (per Government Code 12 Section 7.9) 13 Diane Olson Chief, Board 14 Proceedings Division 15 Board of Equalization 16 Staff: Amy Kelly 17 Linda Frenklak 18 19 ---oOo--- 20 21 22 23 24 25 26 27 28 2 1 Sacramento, California 2 October 6, 2009 3 ---oOO--- 4 MS. OLSON: Okay. Our next item is those items 5 taken under submission. 6 MS. YEE: Okay. 7 MS. OLSON: The first one is B1, Barbara Bladen 8 Porter. 9 MS. YEE: Okay. Members, we've taken item B1, 10 Barbara Bladen Porter, under submission. Is there a 11 motion? 12 MR. LEONARD: I have a question, I suppose. 13 MS. YEE: Mr. Leonard. 14 MR. LEONARD: Maybe Ms. Mandel can help me with 15 it. 16 There's -- the -- the briefs raised the issue 17 of res judicata as to whether it's even before us until 18 we rule on that. Is there a separate discussion and 19 debate required as to whether she participated or not in 20 a meaningful way before we get to the actual tax issue? 21 MS. KELLY: Are you asking if the motion should 22 be done separately? 23 MR. LEONARD: Yes. 24 MS. KELLY: I think the motion should be done 25 together. And so -- for example, after discussion here 26 if you decide that Appellant meaningfully participated 27 in the prior appeal, that would be the end of the 28 matter. 3 1 However, if it -- if the motion is that 2 Appellant did not meaningfully participate in the prior 3 appeal then there should also be a motion as to whether 4 or not she's entitled to relief. 5 And I believe that the Appellant is asking with 6 relief under Subdivision C. 7 MS. YEE: C, right. 8 MR. LEONARD: Right. I heard that part. 9 MS. YEE: All right. 10 MS. KELLY: Yeah. 11 MR. LEONARD: A further question, what -- what 12 is our standard for meaningful participation and are we 13 setting any precedent by -- if we do decide to say that 14 she didn't meaningfully participate and that we can 15 address the tax issue? 16 MS. KELLY: Well, if the Board decides based on 17 the facts here that -- decides the issue either way, 18 the -- this particular case is non-precedential. If the 19 Board would like to make a precedential opinion on that, 20 then it would direct us to do a formal opinion. 21 MR. LEONARD: Do we have -- do we have anything 22 on the subject? 23 MS. KELLY: We do not. 24 MS. MANDEL: And is a possible other motion 25 simply to deny the appeal? 26 You don't like those. 27 MS. KELLY: Well, we need some indication as to 28 whether or not the Board's -- what the Board has decided 4 1 on the res judicata issue so that we can know whether or 2 not there's been a determination on the innocent spouse 3 issue. 4 MS. YEE: Okay. 5 MS. KELLY: I have a few thoughts on the 6 meaningful participation since the parties seem to be 7 sort of at parity and there was no real -- 8 MR. LEONARD: I'd love to hear your thoughts. 9 MS. KELLY: Oh, excellent. Well, looking at -- 10 MR. LEONARD: Is that a formal question? 11 MS. KELLY: Looking at the Tax Court cases, 12 which is what we're doing here, to determine how did the 13 Tax Court treat Petitioners in that case coming back for 14 a second time to again -- to ask for innocent spouse 15 relief. And those cases indicate that where -- let's 16 say a wife, as is the case here, is merely following 17 some -- her husband's instructions to sign documents, 18 that that by itself is not enough to establish 19 meaningful participation in the prior proceeding. 20 And -- 21 MS. YEE: Would you repeat that? 22 MS. KELLY: Right. Where there's only a wife 23 following the husband's direction to sign documents, 24 that that's not enough to establish meaningful 25 participation. And they're really looking for some 26 other kind of activity by the spouse requesting. And 27 so, for example, testifying or participating in the 28 settlement negotiations. 5 1 For example, in Huynh -- I'm not sure I'm 2 pronouncing that right, what -- what the spouse did was 3 actually attend the appeals officer meeting with the 4 appeals attorney, the IRS appeals attorney -- attended 5 it. And -- and so something else under the Tax Court 6 cases seems to be required. 7 MS. MANDEL: And that -- and that's why I was 8 asking about our -- our practice of nonappearance. And 9 I think that's what Mr. McEvilly sort of alluded to when 10 he was talking about you'd open it up for almost anybody 11 because in a lot of the cases all that happens is 12 someone has signed -- 13 MS. KELLY: An appeal. 14 MS. MANDEL: -- an appeal. And then it's going 15 on written. 16 MS. KELLY: And that's entirely correct. 17 MS. MANDEL: But it's -- 18 MS. KELLY: There are differences between what 19 the Tax -- how the Tax Court handles its cases and how 20 the Board. I mean, here we have -- the Appellants may 21 if they choose have the Board decide on the written 22 record. 23 And so for our Appellants, you know, the most 24 that they participate is they sign the appeal letter and 25 then they submit briefs, either themselves or through 26 the rep. That's the most that we ever see them. 27 They've participated completely in the appeal. 28 MS. MANDEL: But then you could have -- but 6 1 then the sort of struggle when you have the 2 nonappearance calendar is if you have someone who merely 3 signs the appeal form and doesn't participate in the 4 actual oral hearing where you have an actual oral 5 hearing, then -- then that case that you mentioned -- 6 MS. KELLY: Huynh. 7 MS. MANDEL: Yeah, that -- then you're like 8 well you just signed one -- one form, and that's why we 9 had that discussion about is it just an opportunity to 10 participate or is it really meaningful -- meaningful 11 participation. 12 But then you -- then you're saying someone who 13 had a -- who had an actual oral argument case and the 14 wife just signed the form, that under the -- that Tax 15 Court case that's -- if there was no other evidence of 16 her participating in the discussion, or anything that 17 then she would not meaningfully participate. 18 MS. KELLY: Uh-huh. 19 MS. MANDEL: But then you'd have someone -- if 20 you're on a nonappearance and all they did was sign the 21 form and there's no other evidence, you know, do you 22 want to wind up saying that that's meaningful 23 participation because of the nature of nonappearance? 24 That doesn't -- but -- you know, but the -- neither -- 25 nobody would have a way to sort of get behind it if 26 she's testified, which I guess she did in her 27 affidavits, that she -- he did everything and she 28 didn't -- 7 1 MS. KELLY: Right. 2 MS. MANDEL: -- she didn't do anything. I 3 think that's what Mr. McEvilly seemed to be alluding to 4 in my mind was he was saying, well, then pretty much 5 anybody who comes, you know, forward is just going to 6 say, you know, I didn't -- I didn't do it. But -- 7 MS. KELLY: Precisely. 8 MS. MANDEL: -- I was trying to reconcile a 9 nonappearance case. I don't -- you know -- 10 MS. KELLY: Those are the differences. And -- 11 but keeping in mind that Appellant has the burden of 12 proof to show that she did not meaningfully participate. 13 I don't know if that helps. Has she shown that here. 14 And we have the declaration -- 15 MS. MANDEL: And -- 16 MS. KELLY: -- from her. 17 MS. MANDEL: Yeah. And that's I think why Mr. 18 Taggart in his papers was saying he didn't think that 19 the nonappearance -- it shouldn't weigh -- it was like 20 it was a neutral thing, you shouldn't hold it against 21 them and you shouldn't hold -- shouldn't presume it in 22 their favor. Which is why I was kind of -- thought that 23 maybe she didn't really sign the form, but that kind of 24 went by the Board's discussion. 25 MS. YEE: Yeah. 26 MR. LEONARD: Yeah, I agree, he didn't pursue 27 the argument on that as much as I thought, and my 28 conclusion is, is the evidence is so thin as to -- 8 1 whether she signed and what her -- what she knew when -- 2 when and if she did sign that it -- it was -- it went on 3 to the -- the merits of the case. 4 But I think we have -- I do think we have an 5 issue to decide what -- to the extent we have the same 6 standard for our appeals of what meaningful 7 participation is, that we've got to decide what that is. 8 MS. YEE: Okay. Is there a motion? 9 MS. MANDEL: Well, I -- I was prepared to make 10 the kind of motion you don't particularly like, which is 11 just to -- 12 MS. YEE: Deny the appeal. 13 MS. MANDEL: -- deny the appeal because of 14 the -- 15 MS. YEE: Yeah. 16 MS. MANDEL: -- sort of -- I mean, when I 17 walked in the door I was thinking that -- that it was 18 sounding more like she did not meaningfully participate 19 based on her affidavits. But then it got a little -- 20 MR. LEONARD: A question to Appeals then. 21 MS. YEE: Mr. Leonard. 22 MR. LEONARD: Did -- did you have a 23 recommendation as to the proper motion? I didn't see it 24 in your -- or active -- 25 MS. KELLY: No, this is, you know, purely a 26 question -- it's a -- it's a factual issue and the trier 27 of fact has to weigh the evidence and the credibility of 28 that, and then determine whether or not she has shown 9 1 that she did not materially participate. 2 I'll note that in one of the cases that was 3 sort of closer to the fact pattern here, Monsour, the 4 Petitioner, one of the things she -- it was similar in 5 that she contended that she didn't -- she wasn't 6 involved in the prior proceeding, and that she let her 7 husband and the rep. handle it. 8 And one of the facts there was that the -- her 9 husband and the representative had dinner meetings at 10 their home and her contention was that she did not take 11 part in those meetings. And the Court found the 12 testimony as to her participation just not to be 13 credible. 14 And then in addition they found it unlikely she 15 did not mater -- meaningfully participate on the basis 16 that she was an attorney. And in fact, one 17 distinguishing factor in that case is that she 18 instructed the rep. to concede two issues from her law 19 office practice. 20 So -- but the rest of the facts are similar in 21 that her other participation -- you know, the remainder 22 of what she did in that appeal was she received a copy 23 of the response to the subpoena from her rep. She was 24 at home when the dinner meetings were held. The 25 representative met with the IRS attorney to settle the 26 case, and she signed the joint tax return. 27 MS. MANDEL: Yeah, so all we -- all of what we 28 have here is a signature on the joint return, which she 10 1 would have authorized if she didn't sign it. We have 2 her signature on the Power of Attorney for the enrolled 3 agent who represented them on protest. And a signature 4 which originally maybe wasn't hers but she would have 5 authorized it in any event on the actual appeal letter, 6 which was signed after the Board Proceedings asked 7 whether she was going to be a participant in the appeal. 8 But we don't have evidence of anything further 9 and she -- we have her affidavit saying -- 10 MS. KELLY: Right, as she was not -- 11 MS. MANDEL: -- he -- he handled it all. But 12 she's not -- yeah. 13 MS. KELLY: She chose not to testify. 14 MS. MANDEL: Right. 15 MS. KELLY: Which is a factor. 16 MS. FRENKLAK: If I may mention, this is also 17 part of a pattern and practice in their household in 18 their marriage through these years -- 19 MS. MANDEL: Right, yeah. 20 MS. FRENKLAK: -- with respect to his separate 21 property. This is not community property. 22 MS. MANDEL: Right. 23 MS. FRENKLAK: This is not jointly owned 24 property. 25 MS. MANDEL: So I -- I mean, I -- it's an 26 unusual case, I think, a little bit, maybe. 27 So -- 28 MS. KELLY: We don't see Subdivision C too 11 1 often, and likewise we don't see the bar coming up very 2 often. This is the first time the res judicata issue. 3 MS. MANDEL: Yeah. So I -- I guess -- I mean 4 on -- on balance, I mean I -- I guess I'm still a little 5 bit where I was walking in the door because of the one 6 case that I had looked at that you mentioned that we 7 can't seem to -- I can't seem to pronounce. Huynh -- 8 MS. KELLY: Yeah. 9 MS. MANDEL: So -- so I guess I'd be that she 10 didn't meaningfully participate, but I -- I don't -- I 11 don't know -- I'm not in -- I was more on the denying 12 the appeal. 13 MS. YEE: Okay. Do you want to make a motion, 14 Ms. Mandel? 15 MS. MANDEL: I'd make that motion. 16 MS. YEE: Okay. A motion by Ms. Mandel finding 17 that Appellant did not meaningfully participate in the 18 prior appeal. 19 Is there a second? 20 MS. KELLY: I'm sorry, can we clarify the 21 motion? Did not meaningfully participate, or did 22 meaningfully participate? 23 MR. LEONARD: Did. 24 MS. YEE: Did you mean to say -- I heard "not" 25 but -- 26 MS. MANDEL: Yeah, I mean, I was -- I'm just 27 like -- I'd be interested to hear what other people have 28 to say, but I -- I think I talked myself back into -- 12 1 MS. KELLY: Okay. 2 MS. MANDEL: -- based on the Huynh case -- 3 MS. KELLY: I'm sorry, I just wanted to make 4 sure that I heard it. 5 MS. MANDEL: -- not meaningfully participate, 6 but -- but I was inclined to deny the appeal. 7 MS. KELLY: Okay. Thanks. 8 MS. YEE: Okay. I have a motion by Ms. Mandel 9 that -- finding Appellant did not meaningfully 10 participate in the prior appeal. 11 Is there a second? 12 MR. LEONARD: Well, if it's did not 13 meaningfully participate you need a second sentence. 14 Sorry to interrupt. Because that grants the hearing on 15 the tax issue. 16 MS. MANDEL: Right, which is why then I said I 17 would deny the appeal, but -- 18 MR. LEONARD: Okay, that's -- 19 MS. MANDEL: But, you know, I've just been 20 yapping here. I haven't heard anything from anyone 21 else. 22 MS. YEE: Yeah. Well, actually, I -- 23 MS. MANDEL: The -- the biggest struggle was 24 because of the non -- from my -- you know, was because 25 of the nonappearance. 26 MR. LEONARD: Yeah. 27 MS. YEE: Right. But -- but I think -- I mean, 28 from my perspective I thought there was still sufficient 13 1 evidence to support Appellant's participation. 2 MS. MANDEL: Participation. 3 MS. YEE: Yeah. I mean, given the things that 4 FTB had enumerated and what we have on the record. 5 MS. MANDEL: Okay. 6 MS. YEE: It is odd from the standpoint that 7 there wasn't kind of active, you know, kind of 8 involvement on her part, but I think there was 9 sufficient evidence still to at least suggest that there 10 had been meaningful participation. 11 MS. MANDEL: We can always mull it over. 12 MS. YEE: Or we can -- well, we have a motion 13 and a second. Let's -- any other discussion on this? 14 Mr. Leonard. 15 MR. LEONARD: Can you restate the motion and 16 second. 17 What's the motion? And, yes, I'd be happy to 18 comment. 19 Is the motion that she did or did not 20 meaningfully participate? 21 MS. YEE: I believe the motion is that the 22 Appellant did not meaningfully participate. And with 23 respect to then the second issue, to deny the appeal. 24 Is that correct? 25 MS. MANDEL: Uh-huh. 26 MS. YEE: Okay. 27 MS. MANDEL: I could withdraw the whole thing. 28 MR. LEONARD: I -- I could support that motion 14 1 for the tax reason that I think she's living off the 2 value of that property and therefore had a -- had a 3 personal interest. It may be separate property but 4 benefited from the income stream from that property of 5 the trust. 6 So I -- I didn't find that part of the argument 7 credible. But if -- if the first part of the motion is 8 made and I'm -- I'm still kind of like you are, torn 9 between it, I think we should ask Appeals to adjust our 10 form and -- and add a sentence that if you sign this 11 waiver of -- of appearance, this -- this does not mean 12 that you're not participating in the process. 13 There's some kind of disclaimer that this issue 14 isn't raised, because we have this nonappearance 15 calendar which is unlike any other tax administrative 16 proceeding that I'm aware of. 17 MS. MANDEL: Yeah. See, I mean, that's my real 18 problem is -- 19 MR. LEONARD: So we need to change our 20 procedure so that we -- we're clear in the future -- 21 MS. MANDEL: And that's why I have a -- that's 22 why I'm -- I'm of two minds, because I don't want to 23 give a benefit to someone -- 24 MR. LEONARD: Right. 25 MS. MANDEL: -- who waives appearance. But -- 26 MR. LEONARD: So we should notice that when 27 they -- 28 MS. MANDEL: -- you know, a benefit more 15 1 than -- but I don't know how to deal with it in the 2 context of this case unless you say, well, you sort of 3 believe that she wouldn't have done anything more had 4 she actually had an oral hearing. 5 But, as they say, she wasn't here to even 6 testify on her matter today. 7 MR. LEONARD: And it's hard to tell and we have 8 no standard. We've had a number of cases where a rep. 9 and one spouse showed up and purporting to represent 10 both spouses, and the one spouse saying they represented 11 their -- their partner and we -- we took that at face 12 value. And we didn't -- we got the signature, which is 13 good, but beyond that we just assumed that the other 14 spouse benefited from whatever the benefit was and would 15 owe -- if there was an extra tax due, owe their share of 16 it. We never really asked in those cases. 17 MS. MANDEL: And -- you know, all this talking 18 is going -- sort of talking me out of it. 19 MS. YEE: Well, the Appellant had the 20 opportunity to participate in the prior appeal. 21 MS. MANDEL: Right. 22 MS. YEE: Chose not to, right? 23 MS. KELLY: That's correct. 24 MS. YEE: I mean, it's incumbent upon her to 25 determine her level of participation. There was none. 26 MS. KELLY: Uh-huh. 27 MS. YEE: And I just think we kind of -- I 28 mean, it's kind of flipping kind of, I guess, an 16 1 incentive. I mean, why -- why should the Appellant be 2 entitled to -- I mean, because she chose not to have an 3 oral hearing for the prior appeal we're going to 4 kind of -- 5 MS. KELLY: And it is her burden to prove -- 6 MS. YEE: Yeah. 7 MS. KELLY: -- that she did not materially 8 participate. And if you find that she simply hasn't 9 shown that, then you would find that she did materially 10 participate -- 11 MS. YEE: Right. 12 MS. KELLY: -- and that would be the end of the 13 decision. 14 MS. YEE: Well, that's where I am. 15 MS. MANDEL: Well, I'm happy to withdraw the 16 motion and let something else go forward. I mean, I -- 17 you know, I -- you can hear I'm of mixed mind. 18 MS. YEE: Yeah. 19 MS. MANDEL: And -- and I really thought when I 20 was walking in that it was a big issue that this was not 21 her signature and she was standing behind "I did not 22 participate because this was not my signature." 23 MS. KELLY: I know, they just backed away from 24 that argument. 25 MS. MANDEL: And they backed away from that, 26 really fast. 27 MS. YEE: Well, do you want to withdraw the 28 motion or shall we try to take a vote on the motion? 17 1 MR. HORTON: Madam Chair. 2 MS. YEE: Mr. Horton, please. 3 MR. HORTON: It seems to me that that burden of 4 proof is on the Appellant, and they have not met that 5 burden of proof. 6 I mean, I'm sort of sympathetic because of the 7 Huynh case and the Appellant's representative sort of 8 implied -- I mean, he -- he too had knowledge of the 9 case, sort of implied that the wife did it because the 10 husband -- would have done it had the husband asked her 11 to do it. 12 But there seems to be enough collaboration on 13 other matters subsequent to this transaction to imply 14 that there was some knowledge. 15 So then we go to the question of participation. 16 And that for me is sort of tough, but I kind of go to 17 the actions subsequent to his death. And there's plenty 18 of participation and benefit, as well, through no fault 19 of hers and certainly his, either. 20 MS. MANDEL: Well, all -- 21 MR. HORTON: As I talk, I sort of talk myself 22 out of it. 23 MS. MANDEL: Yes. 24 MS. STEEL: Madam Chair. 25 MS. YEE: Ms. Steel. 26 MS. STEEL: You know, it was just really 27 interesting, usually I go for -- when it's not really 28 sure, try to go for taxpayers, but this time that I 18 1 asked attorney that why she didn't participate on 2004, 2 and why she didn't bring out that innocent spouse 3 relief. And I wanted to hear that she didn't know and, 4 you know, that -- you know, she didn't even know that 5 husband signed everything, but attorney never answered 6 that. 7 If she knew she still signed that paperwork. 8 So, it was -- I feel kind of bad that if husband signed 9 everything and husband knew exactly what was going on, 10 and I been talking about this case on the way here and, 11 you know, my husband doesn't sign anything. So, he's 12 totally for innocent spouse relief if something happened 13 between us. So I know because I handle everything. 14 MR. LEONARD: As -- as your counsel I advise 15 you not to say that. 16 MS. STEEL: But for this case that, you know, 17 why she didn't file it at 2004 and then after her 18 husband died and, you know, we didn't that statute -- 19 between -- I mean before that Statute of Limitation she 20 just suddenly file that and she's asking for innocent 21 spouse relief. 22 Something's not quite clear for me to go for 23 taxpayers at this point. So -- 24 MR. HORTON: Yeah, I mean -- Madam Chair, I 25 share those sentiments. I mean, the attorney seems to 26 have more knowledge than he shared. And he seemed to 27 evade the discussion of fraud relative to the signing of 28 the return. 19 1 And in that evasion his own testimony implied 2 that there was participation and knowledge and 3 participation. So, in the absence -- I mean, to the 4 letter of the law in the absence of the Appellant 5 participating -- I mean testifying, I mean I have to 6 rule against her personally. 7 MS. MANDEL: Madam Chair, I'll withdraw my 8 motion. 9 MS. YEE: Okay. Motion has been withdrawn. 10 Let me try a motion. 11 I will move that Appellant is barred by the 12 doctrine of res judicata from seeking innocent spouse 13 relief. 14 MR. HORTON: Second. 15 MS. YEE: Second by Mr. Horton. 16 Please call the roll. 17 MS. OLSON: Madam Chair. 18 MS. YEE: Aye. 19 MS. OLSON: Mr. Leonard. 20 MR. LEONARD: Aye. 21 MS. OLSON: Ms. Steel. 22 MS. STEEL: Aye. 23 MS. OLSON: Mr. Horton. 24 MR. HORTON: Aye. 25 MS. OLSON: Ms. Mandel. 26 MS. MANDEL: Abstain. 27 MS. OLSON: Motion carries. 28 MS. YEE: Okay. 20 1 ---oOo--- 2 REPORTER'S CERTIFICATE 3 4 State of California ) 5 ) ss 6 County of Sacramento ) 7 8 I, BEVERLY D. TOMS, Hearing Reporter for the 9 California State Board of Equalization certify that on 10 October 6, 2009 I recorded verbatim, in shorthand, to 11 the best of my ability, the proceedings in the 12 above-entitled hearing; that I transcribed the shorthand 13 writing into typewriting; and that the preceding 20 14 pages constitute a complete and accurate transcription 15 of the shorthand writing. 16 17 Dated: November 5, 2009. 18 19 20 21 ____________________________ 22 BEVERLY D. TOMS 23 Hearing Reporter 24 25 26 27 28 21