1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 NOVEMBER 17, 2009 9 10 BUSINESS TAXES COMMITTEE 11 12 13 14 15 16 17 18 19 20 21 Reported by: Juli Price Jackson 22 No. CSR 5214 23 24 25 26 27 28 1 1 2 P R E S E N T 3 4 For the Board Betty T. Yee of Equalization: Chair 5 Jerome E. Horton 6 Member 7 Bill Leonard Member 8 Michelle Steel 9 Member 10 Marcy Jo Mandel Appearing for John 11 Chiang, State Controller 12 (per Government Code Section 7.9) 13 Joann Richmond 14 Board Proceedings Division 15 16 17 ---oOo--- 18 19 For Sales & Use Tax Department: Jeff McGuire 20 Freda Orendt 21 22 23 24 25 26 27 28 2 1 INDEX OF SPEAKERS 2 ---o0o--- 3 NAME PAGE 4 Joseph Vinatieri 6 5 Michele Pielsticker 8 6 Kyla Christoffersen 9 7 Gus Rivera 37 8 Dan Davis 37 9 Jesse McClellan 39 10 11 ---o0o--- 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 NOVEMBER 17, 2009 4 ---oOo--- 5 MS. RICHMOND: Our next item on the agenda is 6 the Business Taxes Committee. 7 Ms. Yee? 8 MS. YEE: Okay, thank you very much. 9 Let us convene the Business Taxes Committee. 10 We have one item on the Committee's agenda. 11 Mr. McGuire, do you want to introduce the item? 12 MR. MC GUIRE: Good morning, I'm Jeff McGuire 13 with the Sales and Use Tax Department. 14 With me this morning is Ms. Freda Orendt. 15 She's also with the Sales and Use Tax Department. 16 As you mentioned, we have one agenda item for 17 your consideration today that involves a proposed new 18 Regulation 1698.5, Audit Procedures. 19 This regulation will provide taxpayers and 20 Board staff with procedures and guidance to facilitate 21 the efficient and timely completion of an audit. 22 The regulation also provides procedures for 23 timely communication between Board staff and taxpayers. 24 More specifically, the regulation addresses the duties 25 of Board staff and taxpayers in the audit process, 26 formalizes procedures related to audit plans, timely 27 resolution of audits, waivers of limitation, requests 28 for information and presentation of audit findings. 4 1 Alternative 1, which is recommended by staff 2 requests Board approval and authorization to publish 3 Regulation 1698.5, Audit Procedures. 4 And then Alternative 2, which is recommended by 5 interested parties, would not approve the regulation. 6 We do respectfully request your approval of one 7 of these alternatives. And I know we have several 8 speakers today and Freda and I are both available to 9 answer any questions that you have. 10 MS. YEE: Okay, thank you. 11 Ms. Orendt, do you have any comments at this 12 time? 13 MS. ORENDT: Just a few brief. 14 I think we've made a lot of progress during the 15 interested parties meetings that we've had. We do 16 believe that the language now is much more acceptable to 17 many of the interested parties, as they've shared with 18 me. 19 And it provides for an orderly process that 20 leads to a timely progress and completion of the audit. 21 It sets out our expectations very clearly as to how an 22 audit should progress for both our taxpayers and our 23 Board staff. 24 MS. YEE: Okay, thank you very much. 25 We do have a number of speakers on this item. 26 Let me call you up three at a time, if I may? 27 First, if Joe Vinatieri, Michele Pielsticker 28 and Kyla Christoffersen will come forward? 5 1 And if you'll introduce yourselves for the 2 record and I'm going to give you two minutes each. 3 ---O0O--- 4 JOSEPH VINATIERI 5 ---o0o--- 6 MR. VINATIERI: Good morning, Joe Vinatieri. 7 Interesting hearing your discussion about the 8 problems with this Headquarters, I thought local 9 government had lots of dysfunctional issues. I think 10 can see that the State, obviously, has many of the same. 11 MR. LEONARD: Does Whittier want to buy a City 12 Hall? 13 MR. VINATIERI: Whittier's actually doing 14 fairly well, considering. 15 MR. LEONARD: Sorry. 16 MR. VINATIERI: But we don't need a building up 17 here, thank you. 18 Okay, good morning. Thanks for the opportunity 19 to present some comments. And thanks to the staff for 20 their efforts. 21 I've been involved in literally hundreds of 22 audits over the years and from large and complex Fortune 23 100 taxpayers to small mom and pop restaurants, who were 24 having markup cases -- each one with both general and 25 unique features. 26 There are many admirable aspects to this 27 proposed regulation, but, however, because of the -- 28 what I call the one size fits all or the tie the hands 6 1 of the audit staff and taxpayer type of nature of the 2 proposed reg, I oppose the proposed reg as a regulation. 3 For example, Section C4 provides that a 4 follow-up audit, where the issues are the same as in a 5 prior audit and which is under appeal, shall not be held 6 in abeyance, even though the appeal of the prior audit 7 will resolve the issues in the follow-up audit. 8 We've done this on many occasions. We've held 9 it up and it would save both State and the taxpayer time 10 and money because it resolved all of the issues doing 11 that prior audit. 12 We don't -- really don't want to lose the 13 flexibility of that type of opportunity here. 14 Another example, Section C8, provides a 15 two-year period to complete an audit, which generally is 16 a very reasonable time frame. And I appreciate the fact 17 that the staff has modified the previous two-year 18 language in the original draft, but as part of a 19 regulation, I am concerned that the field audit staff 20 will see the two years as a rule and not as a flexible 21 standard. 22 There are some other examples, but to be brief, 23 I have a suggestion for the Board. And that is, much of 24 the proposed language here is very helpful and is good 25 policy. It's policy that should, however, be in the 26 audit manual. 27 I encourage you to put much of the proposed 28 text in the audit manual, not in an inflexible 7 1 regulation that has the force and effect of law, and to 2 see how it works. 3 By doing this, you can monitor the impact on 4 taxpayers and the field audit staff to insure 5 effectiveness and fairness without possible 6 unanticipated and unintended potential negative 7 consequences. 8 I appreciate your time. And thank you very 9 much. 10 MS. YEE: Thank you very much, Mr. Vinatieri. 11 Next speaker? 12 ---o0o--- 13 MICHELE PIELSTICKER 14 ---o0o--- 15 MS. PIELSTICKER: Good morning, Michele 16 Pielsticker, California Taxpayers' Association. 17 We were opposed to this regulation initially. 18 And as a result of the interested parties process and 19 efforts on the part of staff to hear our concerns and 20 address them, we are now neutral. 21 And I just want to express my appreciation for 22 the process with regard to this regulation. I 23 appreciate staff's willingness to hear our concerns, to 24 try to address them. 25 And I hope that we can continue to work 26 together as we move forward on this. 27 I just want to mention I too have a couple of 28 outstanding issues that I hope that -- that we can 8 1 address as we move forward in this process. One is the 2 issue of concurrent audits, as Mr. Vinatieri suggested. 3 And the other is the issue of claims for refund 4 being put over if they're not addressed at the beginning 5 of the audit or if they are, conversely, put forward 6 toward the end of an audit. 7 There is an interest differential between 8 overpayments and underpayments and that could -- that 9 could mean a significant dollar amount for taxpayers. 10 And there doesn't seem to be, as yet, a clear definition 11 as to what constitutes, "near the end of the audit." 12 And we would just appreciate focusing on this 13 issue as we move forward. 14 And, again, we appreciate your efforts. Thank 15 you very much. 16 MS. YEE: Thank you very much, Ms. Pielsticker. 17 Next speaker, please? 18 ---o0o--- 19 KYLA CHRISTOFFERSEN 20 ---o0o--- 21 MS. CHRISTOFFERSEN: Good morning, Kyla 22 Christoffersen on behalf of the California Chamber of 23 Commerce. 24 Similarly, we had taken an opposition position 25 on the initial versions of this regulation, but we are 26 pleased to remove that opposition at this time and are 27 now neutral as well. 28 We also are very appreciative of the process 9 1 and that so many the business community's concerns were 2 addressed by Board staff and the Members. 3 And we -- and in terms of remaining concerns, 4 they are the same as those expressed by Cal-Tax. 5 But, anyway, thank you very much for being so 6 responsive to our concerns. 7 MS. YEE: Thank you very much, 8 Ms. Christoffersen. 9 Let me call the next three speakers up. But 10 maybe -- and while they come up, if staff could address 11 the issue of concurrent audits and the claims for 12 refunds and some of the comments that were made by our 13 speakers? 14 And while you do that, if Gus River and Dan 15 Davis and Jesse McClellan could come forward? 16 MS. ORENDT: In the case of concurrent audits, 17 I'd first like to point out that the language was 18 intentionally left to be very flexible in the 19 regulation. 20 We start off the sentence, 21 "Generally, the Board will not hold in abeyance 22 the start of an audit pending the outcome of 23 the conclusion of the prior audit or pending 24 the completion of appeals." 25 We did additionally add an additional sentence 26 stating, 27 "In cases where prior audit is under appeal, 28 the Board will begin the current audit by 10 1 examining areas that are not affected by the 2 outcome of the appeal." 3 I think the combination of that flexibility and 4 the clarity with regard to issues that are under appeal, 5 I think, gives us exactly what we have now. 6 We do have the flexibility when we believe it 7 is appropriate to hold on starting or completing a 8 subsequent audit. 9 So, we believe that those are responsive to the 10 concerns that have been raised. 11 With regard to the claim for refund issue, and 12 in this case we are concerned that we do have 13 situations -- and continue to have situations -- where a 14 taxpayer will wait until the audit is completed and they 15 wait to determine -- to find out what the liability will 16 be and then they decide whether they'll will file a 17 claim for refund and hire somebody to do what they call 18 a reverse audit to find credits. 19 We would like to introduce that claim for 20 refund concept earlier in the process. And that's why 21 it will be discussed at the beginning of the audit in 22 both the pre-audit conference and the opening 23 conference. 24 If, in fact, the taxpayer does wait until the 25 completion of the audit, we can process that audit and 26 then subsequently process either a re-audit or a field 27 billing order at a later time and still provide the 28 taxpayer the benefit of that interest differential that 11 1 I believe Ms. Pielsticker made reference to. 2 So, they would not be -- it would not be 3 detrimental to a taxpayer in terms of any credits that 4 are subsequently allowed, subsequent to the completion 5 of the audit. 6 MS. MANDEL: Could you -- could you run that by 7 me one more time about the interest? 8 MS. ORENDT: Right. Well, currently in an 9 audit if somebody raises a claim for refund, those 10 credits offset the debits. 11 MS. YEE: Right. 12 MS. ORENDT: And it's just the net amount that 13 we assess the tax at the debit -- we call the debit 14 interest rate. 15 MS. MANDEL: Right. 16 MS. ORENDT: Now if we assess it in the audit 17 and we don't have those credits because we haven't been 18 provided the documentation, it's assessed at that debit 19 rate. 20 Later the claim for refund is processed and 21 they make an adjustment so that they would get the same 22 offsetting interest as that debit rate, even though it's 23 processed as a separate document. 24 MS. MANDEL: Okay. So -- so, I get a 25 deficiency, or what do we call it here, Notice of 26 Determination for $100. And I have a refund claim that 27 I filed that you guys didn't want to hold up your 28 determination for $50. 12 1 At the time that you finally process the $50 2 refund, you're going to put it in the system somehow -- 3 I'm just wondering how -- because the rates are 4 different and I'm just wondering how it works because 5 the concern is that my audit will be done, I'll get the 6 determination and, let's say -- I mean I guess I 7 understand if the audit is protested, that, you know, 8 that it might still somehow be open and not final and 9 maybe the refund claim somehow catches up with it. 10 But what about where, yeah, I owe that much 11 money, but, by the way, I had this other thing that 12 offsets it? 13 I'm just wondering how it fits in because 14 people are real concerned about this and we -- you know, 15 it's not like the other interest rates where we don't 16 have parity. We've tried to get parity back so many 17 times and we can't get it back. 18 So, I'm just not -- I mean, if people are 19 concerned about this, it must -- I am not following how 20 it how it happens in the system. 21 MS. ORENDT: In the audit situation that I 22 described, where we've done an audit, we've worked on it 23 for a few years, we've come up with a liability, let's 24 say it is $100 -- hopefully, it's much more if we've 25 worked -- 26 MS. MANDEL: The taxpayer hopes it's not. 27 MS. ORENDT: -- for years on this audit, but -- 28 MS. MANDEL: It's easier to do the math that 13 1 way. 2 MS. ORENDT: Right, right. 3 So, they file claim for refund at the end of 4 the audit. So, the claim for refund is timely, so, 5 that's a concern. 6 If it ends up where there's a $50 credit, if we 7 process it, let's say in the case of processing -- using 8 the vehicle of reaudit, then that $50 credit's going to 9 be net against the original $l00 liability and the 10 interest would be computed on the $50 balance. 11 MS. MANDEL: Right. That's if -- 12 MS. ORENDT: So, the effective -- 13 MS. MANDEL: -- that's if the audit is -- the 14 audit and the determination on the audit is somehow 15 still alive in our system? Or it's just whenever we get 16 to it we're going to treat it as a reaudit? 17 That's the part I'm missing. 18 MS. ORENDT: Well, it's conditioned. All this 19 is conditioned on what's typically happening now -- the 20 claim for refund being processed timely so that that 21 entire period is still open -- open to the statute. 22 Another example would be in that same example, 23 somebody goes ahead and pays that liability and files a 24 petition or claim for refund for the payment made on the 25 audit. 26 MR. HORTON: Well, may I? 27 MS. MANDEL: Yeah, go ahead. 28 MR. HORTON: Madam Chair? 14 1 MS. YEE: Yes? 2 MR. HORTON: Seems to me that the concern is is 3 that under the federal law they're allowed an offset -- 4 they call it offsetting interest. And the offset is 5 consistent with the debit interest. 6 And, so, it seems that the concern is is 7 that -- it's a timing matter and that interest is not 8 necessarily calculated on the total amount. Interest is 9 calculated at the point in which the liability was due. 10 And, so, there, in effect, you could have a 11 situation -- and I'm presuming a credit interest will be 12 calculated the same way at the point that the credit was 13 due. 14 Is that correct or not? 15 MS. ORENDT: It would be for the period -- 16 MR. HORTON: For the period in which -- 17 MS. ORENDT: -- in which that credit was due, 18 at whichever quarter it was, the same way we would 19 assess a liability. 20 MR. HORTON: -- so, are you sharing with us 21 that we have the authority to provide offsetting 22 interest in a subsequent action of the Board of 23 Equalization? 24 Let's say, for example, we did an audit of a 25 three-year period, 2006 through 2009. And then a year 26 later the taxpayer came back and filed a claim for 27 refund under the -- 28 MS. ORENDT: That's not -- that's not what I'm 15 1 referring to. 2 I'm referring to a situation where they filed a 3 claim for refund when the audit was not yet determined 4 for the same period that was open and the same period 5 covered by the audit. 6 And that's what typically happens. They don't 7 yet know the amount and that's why we get so many claims 8 for refund for $1 and they don't specify the amount. 9 MS. MANDEL: They don't know the amount of the 10 claimed refund? 11 MS. ORENDT: Correct, correct. 12 MR. HORTON: And, so -- 13 MS. ORENDT: So, this would only work as I 14 described, if they timely filed that claim for refund -- 15 MR. HORTON: Okay. 16 MS. ORENDT: -- before the determination. 17 And that typically happens. They bring it up 18 to us, not after we've determined it -- sometimes, they 19 do, but the situation I described only covers the 20 situation where the audit's in process, everything in 21 that, let's say, three-year period is still open to 22 statute. We have waivers to cover it. And within that 23 period they file that claim for refund. 24 MR. HORTON: And what happens then when they 25 file the claim for refund? 26 MS. ORENDT: Well, if the audit is completed, 27 we would like not to hold up the completion of that 28 audit and process it separately. 16 1 They've already filed the claim for refund. 2 So, they've preserved -- 3 MR. HORTON: And what's -- what's our reasoning 4 for doing that? 5 MS. ORENDT: Because of the timeliness of 6 completing the audits. 7 MR. HORTON: No, I mean, we've -- 8 MS. ORENDT: We've -- 9 MR. HORTON: -- completed the audit for all 10 practical purposes, we just haven't -- and a claim for 11 refund is filed somewhere in the middle of the audit and 12 we're now saying that, okay, we want to finalize the 13 audit and then we'll deal with the claim for refund at a 14 later date. 15 Why? 16 MS. ORENDT: If it's filed during the course of 17 the audit, we don't want to do that. We want to address 18 it with the audit. We're only concerned in those 19 situations -- 20 MR. HORTON: I thought the regs said that the 21 claim had to be filed in the beginning of the audit. 22 MS. ORENDT: -- I don't believe -- the claim 23 for refund, taxpayer's or their rep -- 24 MR. HORTON: You said, "Generally speaking," 25 generally speaking? 26 MS. ORENDT: Well, there's a separate section 27 referring to C7 on claims for refund. 28 MR. HORTON: Uh-huh. 17 1 MS. ORENDT: The claims for refund is a topic 2 that's going to be -- the auditor is going to be 3 required to discuss at the beginning of the audit and 4 ask if there is any areas the taxpayers believe that 5 they're due credits. 6 MR. HORTON: And they're required to do that 7 now, right? 8 MS. ORENDT: They should be doing it now, 9 yes. 10 MR. HORTON: They're not required to do it? 11 They have an option? 12 I mean, I thought when you started -- 13 MS. ORENDT: Well, it is a typical area that is 14 supposed to be covered with each and every taxpayer. 15 I say "should" because we've heard that's not 16 always done. I can't guarantee that it's done. It's 17 our policy to have that discussed at the beginning of 18 the audit. 19 So, under the claims for refund section is, 20 "Taxpayers or their representative should 21 present claims for refund at the beginning of 22 the audit. A claim for refund that is 23 presented near the conclusion of the audit may 24 be addressed separately so as not to delay the 25 timely completion of the audit." 26 We want to encourage the taxpayer to let us 27 know if they believe any credits are due during the 28 course of the audit, rather than waiting until an 18 1 audit's completed. 2 MR. HORTON: And I think there's a lot of 3 wisdom in that. 4 But let's say they don't. What happens? I 5 mean, what's the difference? 6 MS. ORENDT: If -- if they file that claim for 7 refund timely, then they would have the benefit of 8 getting this offsetting interest. 9 However, in the situation that you described, 10 they wait for a year -- 11 MR. HORTON: No, no, wait, I -- 12 MS. ORENDT: -- after the determination. 13 MR. HORTON: I concur that the only time that 14 this works -- in the example you provided, I concur. 15 So, let's stay with that example. 16 MS. ORENDT: Okay. 17 MR. HORTON: What happens? 18 MS. ORENDT: So, we'd issue the determination. 19 They could, if there is other areas, file a claim for -- 20 a claim for refund if they paid it or petition. 21 But assuming they already filed that claim for 22 refund, we're going to encourage them to give us the 23 documentation to support that claim at the earliest 24 possible date so we can establish what that credit is. 25 If that occurs after the determination is made 26 for the audit liability, then we could do it via a 27 re-audit for that same audit period because that time 28 period is still open to statute because they timely 19 1 filed that claim for refund. 2 In a re-audit we take the original amount 3 assessed and we offset anything that we reduced, such as 4 the claim for refund in this case, and then compute 5 interest on the net amount. 6 So, by doing it that way, they, in effect, are 7 given the offsetting credit at the debit interest 8 rate. 9 MS. MANDEL: So, that -- that -- so, that will 10 happen, assuming the taxpayer on the particular audit 11 for which they've lobbed in a refund claim that you 12 didn't want to wait with closing out the audit and 13 issuing a determination, that assumes that the taxpayer 14 is still going through the administrative protest and 15 appeal process or you've managed to figure out the 16 refund claim before you actually do the deficiency -- 17 determination? 18 MS. ORENDT: Well, as long as they filed it 19 while we still had -- 20 MS. MANDEL: I understand. 21 MS. ORENDT: -- an active waiver covering the 22 audit period. 23 MS. MANDEL: Okay. So, go back to my example. 24 Because the way I would understand it is they 25 timely -- they filed the refund claim during the audit, 26 the auditor hasn't walked out the door yet, but you 27 think it's too late for the auditor to deal with and you 28 want to close out the audit, you don't want to hold up 20 1 the issuance of the determination, even though, as 2 Mr. Horton says, you've -- you know, you could have 3 written up all of the work papers and everything, you 4 don't want to hold up issuing that determination on the 5 audit, you're going to separately review this particular 6 claim for refund. 7 And ultimately in a re-audit, which you call a 8 re-audit -- which it took me a little while sitting 9 here to learn it wasn't an actual full re-audit, but 10 just like recalculating the numbers -- that in a 11 re-audit you would put that credit in, whatever is 12 finally determined off that refund claim to be the 13 appropriate amount of credit, you would put that in just 14 like you would have had the original auditor done the 15 work prior to the determination and it had been in the 16 determination. 17 So, they get the benefit of the interest 18 offsetting that they are looking at? 19 MS. ORENDT: That's correct -- 20 MS. MANDEL: Okay. 21 MS. ORENDT: -- as long as the periods are all 22 still open because of the timely filing. 23 MS. MANDEL: Right. And it seems to me that 24 that sort of re-audit function that you all do happens 25 either because the determination, you know, hasn't yet 26 popped out of the system and miraculously you get to it 27 in time, or the taxpayer protested or petitioned, I 28 guess, is our technical word here, petitioned the 21 1 determination so that the -- that the determination was 2 not final or -- and then that they were on appeal or if 3 they filed a petition for redetermination that sometime 4 in that whole time period before the determination goes 5 final that refund claim is handled by the refund people 6 who do that and can get factored in in a re-audit? 7 My original question was -- and the impression 8 I had from part of the concern was -- that if -- if 9 there's a determination that goes final, now, you know, 10 the appeal process being what it is, but assume that the 11 taxpayer didn't have a -- that the taxpayer agreed with 12 the deficiency, the taxpayer didn't agree with that, but 13 thought they had additional credits. 14 So, they're not going to -- you know, is the 15 taxpayer going to have to file a petition to that 16 determination to make sure that they're going to get 17 this credit ultimately on a re-audit? 18 MS. ORENDT: Well, the reality is they are 19 going to file a petition because they say they don't 20 agree because they believe they're entitled to those 21 credits. 22 MS. MANDEL: Okay. 23 MS. ORENDT: So, that is the reality that they 24 will go through that petition process. 25 MS. MANDEL: Okay. Well, then, that closes 26 that loop, I suppose. 27 Okay. Sorry, it took me so long to -- 28 MS. ORENDT: And the other -- the other 22 1 consideration is that if it's a claim for refund, they 2 can -- they will present, in short order, the -- even at 3 the conclusion of the audit -- the documentation so that 4 we can verify it. 5 We're going to include the audit. The problem 6 we have, though, is some claim for refunds that are in 7 process currently have been in process for more than 8 five years. Sometimes it takes taxpayers very long to 9 provide the documentation. 10 By asking and having a discussion of any areas 11 of credit that are due at the beginning of the audit, we 12 can sometimes have -- in a large audit -- have a 13 computer audit specialist set up the test so that we 14 give effect to the credits during the audit, so that 15 they don't have to be handled separately. 16 So, we really want to encourage the taxpayer to 17 raise any areas of credit they believe they are due up 18 front so that they can be addressed during the audit 19 process. 20 MS. YEE: Mr. Horton? 21 MR. HORTON: Madam Chair, I'm having a real 22 problem understanding what we're accomplishing. 23 It seems to me that the audit plan, the 24 management of the audit, most auditors that I know -- 25 and I know quite a few in this agency -- they actually 26 do sit down with the taxpayer in the beginning. And 27 they set forth a plan and strategies on how they're 28 going to proceed, testing methods and so forth. 23 1 And there is a little check off that they check 2 off relative to claims for refunds and it's all part of 3 the training. I mean, I actually conducted quite a bit 4 of training of audits -- auditors. And, so, it seems to 5 be a professional judgment matter. 6 And if the taxpayer files a timely claim for 7 refund or if we somehow finalize the audit and freeze 8 the audit period and they file a subsequent claim for 9 refund, I don't know what we have accomplished. 10 We're still going to provide credit interest. 11 We're still going to do the work on the claim for 12 refund. The only thing that we've done is prematurely, 13 at this point, without this direction, we finalized an 14 audit that isn't final because there is still areas of 15 concern. 16 And we're -- we seem to be moving in the 17 direction of making rules relative to the exception, not 18 necessarily to the rule, and trying to give direction to 19 the audit staff. 20 And, so, my question is, let's say currently in 21 doing this what are we accomplishing that we can't 22 already accomplish? And, if -- is there an 23 additional -- an additional tax or additional 24 convenience or reduction in time? Do we expedite the -- 25 do we minimize the time it takes to do the audit? 26 Theoretically if it takes, you know, 800 hours 27 to do the audit and another hundred hours to do the 28 claim for refund, it would take that hundred hours to do 24 1 the claim for refund and the 800 hours to do the audit. 2 Arguably, if we did it concurrently, we night 3 be able to save some time if we're aware of it during 4 the audit period because, you know, we can offset it 5 right away. We can include it in our testing. It would 6 be part of the projection. And, so, we actually save 7 time. 8 MS. ORENDT: Correct. 9 MR. HORTON: In the current methodology this 10 actually adds additional time because we may have -- we 11 may be going over an area that we've already went over 12 in the claim for refund. So, we've got to go back and 13 retest and readjust and reextrapolate. So, we're adding 14 additional time to it. 15 But if we want to encourage -- for those 16 taxpayers that are using the claim for refund, if you 17 will, as a way of offsetting their liability, seems to 18 me they ought to do that anyway. I mean, that's 19 something that they're entitled to do and they ought to 20 be able to do it. 21 It sounds almost as if, though, the accounting 22 personnel -- in this situation where there's abuse -- 23 the accounting personnel is using this as a tool if 24 they -- if there is an audit liability. 25 There is audit liability, then they say, 26 "Oops, we got an audit liability. So, let's go 27 in and have this reverse audit done so that we 28 can find credits and the offset that audit 25 1 liability." 2 Whereas they might not do that if there wasn't 3 an audit liability. They wouldn't go in and spend the 4 money, time and energy to do the reverse audit. 5 Well, seems to me that person ought to be 6 fired. I mean, if there's a credit due to the company, 7 the company might want to be able to make that decision 8 and do what they have to do in order to get that credit. 9 Because typically these are large audits if they are 10 delayed. 11 And, as you said earlier, if there -- if the 12 audit is going on for two years, the auditor probably 13 thinks there's a liability there. I mean, there is -- 14 otherwise they would do a quick no change and get out of 15 there. So, there's probably a -- a significant 16 liability to -- I mean, the auditor is kind of conscious 17 of their time. 18 So, maybe you can just give me a little clarity 19 as to what -- what we seek to accomplish and what the 20 difference is. 21 Because my assessment is that this adds 22 additional time, possibly, and there is -- and 23 particularly when we're giving offsetting interest, and 24 then I am little concerned whether or not we can 25 actually do that. 26 I know we can do it in the audit, because we 27 just offset it before the liability creates. But I 28 don't know if we could finalize the audit, establish 26 1 debit interest and then turn around and do a separate 2 FBO or separate document to identify credit -- a credit 3 and say, 4 "Okay, now that we've got the audit with debit 5 interest and now we have an FBO, we're going to 6 somehow consolidate these two under a new 7 vehicle and offset the two," 8 or we're -- I'm just having a little problem 9 figuring out how we're going to do that. 10 Maybe you can help me. 11 MS. ORENDT: I do believe by having the 12 taxpayer and encouraging them, working with them, 13 bringing the information on any credits to light at the 14 beginning of the audit, we can verify and incorporate 15 them in tests. 16 So, I do believe by doing that it would result 17 in saving audit hours spent by our staff. 18 MR. HORTON: Give me an example. 19 MS. ORENDT: If -- if they believe they have -- 20 a taxpayer accrued tax on some of their paid bills, we 21 typically look and do an accounts payable test during 22 the audit. If we knew those specific areas, we could 23 incorporate them in the test, test them separate, review 24 them in some way. 25 We think it's for the computer auditor 26 specialist and the auditor to decide the best approach. 27 But if we knew about them in advance, then we 28 could handle them during the course of the audit rather 27 1 than waiting until the audit's completed. 2 MR. HORTON: Accrued interest is generally -- 3 accrued tax is generally on an actual basis and to the 4 extent, we can, or it's on a projected basis. 5 And, so, if it didn't occur in the tests, the 6 original tests that created the debit liability and the 7 period is inconsistent with that, we would have the 8 option of projecting the percentage of error against the 9 credit and saying that credit exists over the audit 10 period, or we would adjust the credit on the actual 11 basis and offset just that actual amount. 12 Of course, the taxpayer might argue that that 13 credit is consistent throughout the audit period, 14 therefore, you ought to project that same percentage of 15 error that did you on the debit to the credit and it 16 results -- you know, it's the same thing. 17 MS. ORENDT: It would depend on how -- how the 18 test was conducted, what accounts the auditor tested, if 19 those accounts of interest included the areas that the 20 taxpayer believed credits were due. 21 It would vary because every situation and every 22 audit is different. 23 Oftentimes taxpayers don't make payment until 24 they do get a bill. And the other thing that we would 25 have to gain is that there are other areas of the audit 26 where there is a liability that aren't going to be 27 completely offset. And, again, this depends on the 28 situation. 28 1 So, if we know there is a liability and we've 2 given the taxpayer an opportunity throughout the audit 3 process to make us aware of any credits, if they don't, 4 then we would benefit by billing and at least then they 5 would consider making payment toward that portion of the 6 liability that has been determined that they believe 7 will not be offset. 8 MR. HORTON: Madam Chair, if I may? 9 I know it's been going on for a while. 10 MS. YEE: Please. 11 MR. HORTON: The -- I mean, I agree with that. 12 I mean, I think finalizing the bill accelerates the 13 collection activity, although they're going to file a 14 petition. 15 And, so, once they file the petition, you're 16 not going to collect anything because you can't, you 17 know, the law doesn't allow you. So, there goes that 18 benefit. 19 You know, I mean, just if -- I may just 20 conclude and share my thoughts -- is that we want to 21 encourage the taxpayer to file a claim for refund, which 22 is something in their best interests, because filing a 23 claim for refund generally means that you're getting 24 money back from the State of California. So, it's in 25 their best interests to do so. We want to encourage 26 that. 27 And our concern seems to be with these reverse 28 audits, where they go in and we spend all these hours 29 1 and we didn't notice the claim for refund because it 2 wasn't in our parameters of testing. And, so, we didn't 3 notice it. And all of a sudden it comes up somewhere 4 else. 5 And at their end, we -- the State of California 6 has been harmed, I think, by the actions -- the 7 dishonest actions of the taxpayer. 8 But mindful -- I mean, I happen to believe that 9 most taxpayers are honest and that this is kind of like 10 the exception of the rule. 11 And, so, as I said before, I have somewhat of a 12 problem of codifying, you know, the exception into hard 13 and fast. 14 But maybe as -- I mean, I don't know how to get 15 there -- certainly to the audit staff we ought to be 16 audit managers who are managing these larger audits. 17 There should be discussions about the claim for refund, 18 should be discussions about the test and the universe 19 and all these other things and, possibly, we ought to 20 require the District Principal Auditor to engage at an 21 earlier stage in these audits or give the District 22 Principal Auditor more authority somehow to have greater 23 leverage over claims for refunds. I don't know. 24 And maybe we shouldn't allow offsetting 25 interest, which I don't know if we can do legislatively 26 -- statutorily, any way. 27 Any thoughts on how we can -- I mean, I am okay 28 with the regulation because -- and I am okay with saying 30 1 what we're saying because we're saying, "generally, may, 2 shall." So, we're still leaving it up to the discretion 3 of the staff or the professional to make the final 4 determination on how best to utilize this. 5 The inherent danger is is that you begin to 6 modify behavior and that just seems to be some of the 7 concerns. I mean -- 8 MS. ORENDT: Right. 9 MR. HORTON: -- seems to me we have enough 10 authority to modify the behavior of our own staff. And 11 now modifying the behavior of the taxpayer, this is not 12 going to accomplish that. 13 MS. ORENDT: If I might? 14 First of all, you made a comment I wanted to 15 clarify. I didn't mean to say or imply by a taxpayer 16 waiting that we view that -- I don't view that as being 17 dishonest in any way. 18 You know, I -- they have resources, they have 19 workload or -- 20 MR. HORTON: I do if they do it intentionally. 21 I mean, if it's intentional. I mean, because otherwise, 22 if it's not intentional, then harm, no foul, it's a 23 legitimate claim for refund, there's no intent behind 24 it, they're not intending to delay the audit and this 25 isn't necessary. 26 Our goal here is to deal with those who are 27 intentionally delaying the audit and exposing the Board 28 to -- to a loss of time and energy when, in fact, they 31 1 knew about it in advance. 2 And we're concerned as well about those who 3 make financial determinations based on the audit 4 liability instead of based on the facts and the law. 5 And that is something that, quite frankly, if 6 we disclose or disclose to -- to the Board of Directors, 7 the true decision makers here, they might be a little 8 upset about that, about someone in the Accounting 9 Department acting in that capacity -- knowing that there 10 is a -- waiting until there is a liability before they 11 exercise their fiduciary responsibility to protect the 12 interests of that corporation and file claims for 13 refunds. 14 I mean, that is -- that should be a 15 determination or something. 16 MS. ORENDT: And that is one reason that we 17 have included throughout the regulation, including on 18 any correspondence or inviting to regular status 19 meetings or the opening conferences, except conferences 20 to taxpayers key decision makers, rather than just the 21 person that's working with the auditor to make sure that 22 they are kept in the loop and apprised throughout. 23 But in response to your question -- 24 MR. HORTON: If I may ma'am? 25 There we go, that might be the solution. 26 The solution might be if, in fact, we feel that 27 that is the case, that there is -- they're conducting a 28 reverse audit, that they are acting in this capacity, 32 1 that we have the authority to disclose it to the Board 2 of Directors or, however high up we need to go. 3 And we disclose that in the beginning, that 4 "Mr. CFO, here's what's going to happen." 5 If there's a subsequent claim for refund and 6 for some reason we feel that -- that you were aware of 7 that claim for refund, where you're conducting a reverse 8 audit, we have been notified to make your superiors 9 aware that they had a claim for refund and no one really 10 took the due diligence to protect the -- to bring that 11 claim for refund to notice. 12 They might act a little differently when you do 13 that. Just a thought. But, again, it's professional 14 judgment. 15 MS. ORENDT: Right. 16 MR. HORTON: It's management of the audit. 17 It's something that we can't necessarily legislate. 18 And if you're saying that our staff needs 19 additional training in this area, let's provide them the 20 training. 21 MS. ORENDT: If I might make one last comment? 22 You mentioned the authority of the District 23 Principal Auditor. The decision as to whether to 24 process the audit or wait until the claim is verified is 25 currently with and remains with the District Principal 26 Auditor. 27 This language isn't intended to change it. 28 And, in fact, this language really doesn't represent a 33 1 change. 2 The District Principal Auditor is also supposed 3 to -- the normal course of action in processing any 4 audits that non concurred and that he's aware that 5 there's a disagreement, there's a ten day office 6 discussion, they have the authority to hold the 7 processing of that audit up if they show -- so believe 8 that it's -- 9 MR. HORTON: It's really a leading statement. 10 I mean, I -- I mean, I was really getting back to the 11 fact that I don't see the difference here. But, other 12 than sending -- 13 MS. ORENDT: So, with or without this language, 14 I think -- 15 MR. HORTON: -- we can do all of this. 16 MS. ORENDT: That's correct. 17 MS. YEE: All right, okay. 18 MR. LEONARD: Madam Chair? 19 MS. YEE: Thank you, Mr. Horton. 20 Mr. Leonard? 21 MR. LEONARD: I'm sorry to interrupt the 22 speakers, but Mr. Horton, you outlined a procedure 23 for -- in response to the earlier speaker's question 24 about claims for refund in which even if it did come in 25 late and was set aside and processed later, that it 26 would all work out. 27 MS. ORENDT: If it was timely -- if it was 28 timely filed within the statute. 34 1 MR. LEONARD: If it was timely filed within the 2 statute? Okay. 3 MS. ORENDT: The period has to be open to 4 statute. 5 MR. LEONARD: Where is that? Where is that 6 procedure in this regulation? 7 MS. ORENDT: It's not spelled out in this 8 regulation. 9 MR. LEONARD: Okay. Where is it? 10 MS. ORENDT: It's currently -- actually, in 11 doing some research and discussions with the Audit 12 Determination and Refund Section that processes our 13 refund unit, it was through verbal discussions. 14 I'm not aware -- 15 MR. LEONARD: So, it's not in the audit manual 16 either? 17 MS. ORENDT: You know, I can't say that it's 18 not. I wasn't able to find it. I don't know if 19 maybe -- 20 MR. LEONARD: So, the taxpayer's objection -- 21 MS. ORENDT: -- Kevin Hanks may be aware of it. 22 MR. LEONARD: -- still has merit because your 23 answer isn't in writing? 24 MS. MANDEL: If the taxpayer went online -- 25 MR. LEONARD: Don't you agree? 26 MS. MANDEL: They wouldn't find it? 27 MR. LEONARD: They couldn't find it? 28 MS. MANDEL: That's what you're saying? 35 1 MS. ORENDT: I couldn't find it. 2 MR. LEONARD: I couldn't. 3 MS. ORENDT: In my research, when this was 4 first brought up -- 5 MR. LEONARD: I appreciate the answer 6 because -- 7 MS. ORENDT: -- I wasn't able to find it. 8 MR. LEONARD: -- I kind of like it, but I -- I 9 don't see it. 10 MS. ORENDT: I'm going to -- yeah, I wasn't 11 able to find it. 12 And, in fact, after the meeting I did ask that 13 a memo be prepared to the District so that they are all 14 aware of that. 15 It took research on my part and -- 16 MR. LEONARD: If you are going to move from 17 audit manual -- 18 MS. ORENDT: -- and I am -- 19 MR. LEONARD: -- regulation, maybe we should 20 move this too. 21 Thank you, Madam Chair. 22 MS. YEE: Thank you, Mr. Leonard. 23 Let's resume the speakers. If you'll introduce 24 yourself for the record, you have two minutes for your 25 comments. 26 Thanks for your patience. 27 ---o0o--- 28 36 1 GUS RIVERA 2 ---o0o--- 3 MR. RIVERA: Hi there, I'm Gus Rivera and I'm 4 with Intel Corporation. And I wanted to take this 5 opportunity to -- to express my appreciation and commend 6 the Board staff for working with taxpayers and, in my 7 opinion, bringing the less than desirable original draft 8 language to a more reasonable state as it's being 9 recommended to you today. 10 MS. YEE: Thank you very much. 11 Next speaker? 12 ---o0o--- 13 DAN DAVIS 14 ---o0o--- 15 MR. DAVIS: Hi, I'm Dan Davis with Associated 16 Sales Tax Consultants. 17 And I also wanted to thank the Board and the 18 staff for the changes that they have made in the 19 regulation to date that made it much more reasonable 20 than it was. 21 However, I still have to agree with 22 Mr. Vinatieri that the applicable provisions really 23 should be in the audit manual. 24 It's providing a one size fits all approach to 25 audits. And in the larger companies this is probably 26 going to be less of a problem, but as you get down 27 smaller and smaller, where you have most of your 28 taxpayers, the mom and pop operations, this is, in some 37 1 ways, going to be very onerous to them. It gives the 2 auditor a great deal of discretion, more so than it had 3 before, in making demands of the parties. 4 And I'm only going to give one example because 5 of the time frame. Paragraph C8, dealing with audits, 6 the second paragraph of that section, I am sorry, 7 Section C8 and that is the section addressing audit 8 plans. And I'm specifically referring to the third 9 sentence in that section, which is, 10 "The audit plan should be signed by the auditor 11 and either the taxpayer or the taxpayer's 12 representative to show a commitment by both 13 parties that the audit will be conducted as 14 described in the audit plan to allow for the 15 timely completion of the audit." 16 Well, the fact is, I have no objection to the 17 taxpayer signing the audit plan certifying that they 18 read and understood the plan -- even though in most 19 cases they will not on the level of small business 20 people. 21 But as far as their being committed to the 22 plan, this is putting the taxpayer in a box that the 23 auditor can use later on to come back and whack them. 24 For example, an audit method that I'm seeing 25 more and more in very small restaurants is a sit down 26 test, where after the audit period, the auditor goes in 27 and sits down for a day, tallies up what are taxable 28 versus nontaxable sales and then applies that percentage 38 1 to the entire audit period. 2 And there are so many things that are -- that 3 can be wrong with that approach. It's too difficult to 4 address. I mean, it depends on what day of the week 5 they are in, it depends on the season of the year, there 6 could have been economic changes, changes in the 7 environment over the three-year audit period, none of 8 which are reflected in the test. 9 MS. RICHMOND: Time has expired. 10 MS. YEE: Thank you. 11 MR. DAVIS: May I just say that no taxpayer in 12 their right mind should be required to commit to that 13 kind of a test. 14 And that appears to be what -- what's this is 15 requiring here. 16 MS. YEE: Okay, thank you, Mr. Davis. 17 Next speaker? 18 ---o0o--- 19 JESSE MC CLELLAN 20 ---o0o--- 21 MR. MC CLELLAN: Good afternoon, Jesse 22 McClellan with Associated Sales Tax Consultants. 23 I also would like to commend the staff after 24 reading the revised regulation. It looks like the 25 majority of the language in there that was potentially 26 damaging to taxpayers was removed or adjusted. 27 There does remain a couple of provisions within 28 the regulation that I have concern with. From what I'm 39 1 gathering is it's the staff's intent, and also the 2 Board's intent, to essentially allow the audit staff to 3 have some leeway and use their professional discretion 4 in what they're going to do. 5 If you look at C4, time of the audit, the 6 language in that particular provision states that, 7 "The auditor will schedule the audit without 8 regard to the taxpayer or their 9 representative." 10 I don't think that that's appropriate language 11 to include in there. If you -- if you also look at the 12 second paragraph of that same section, with respect to 13 holding the audit in abeyance pending the completion of 14 an Appeals conference, the staff added, "generally," 15 which is intended to provide some discretion there. 16 But the very next sentence says that, 17 "The Board will begin the audit by examining 18 areas that are not affected by the outcome of 19 the appeal." 20 Clearly, that could be interpreted as the Board 21 doesn't have to do the complete audit, but it will do 22 the audit regardless of whether or not there is an 23 appeal of a portion of the audit. 24 And I think what that's to going result in is 25 really an inefficient use of the auditor's time, perhaps 26 a waste of the taxpayer's time, and an appeal 27 potentially could eliminate the need for a review of 28 some of those areas. 40 1 And without allowing that potential to proceed, 2 you essentially remove the opportunity to operate more 3 efficiently. 4 The final issue that I have with the regulation 5 deals with the location of the audit. The language 6 states that the audit will not be transferred if there 7 is any significant delay of the start of the completion. 8 The staff essentially responded to the issues 9 raised by the interested parties that there's not an 10 issue there because it's narrowly stated within the 11 regulation. But I don't see that the language is 12 narrow. 13 So, I would ask that the Board take a look at 14 that particular language. Again, that's Section C1 of 15 the regulation. 16 Thank you. 17 MS. YEE: Thank you very much. 18 MS. MANDEL: Maybe you're going to -- I just 19 had two questions for them based on these last two 20 speakers. 21 MS. YEE: Yeah, I was going to ask staff to try 22 to address the concerns that Mr. McClellan has raised 23 with respect to the location of the audit and then the 24 provisions under subdivision C that he's enumerated. 25 MS. MANDEL: And can I just add mine on so you 26 can address them all at once? 27 The question that Mr. Davis raised about 28 commitment, if they pick an audit methodology is that -- 41 1 does that mean that the taxpayer is forever bound by 2 that audit methodology by signing the audit plan? 3 Is there some way that that's not and be made 4 clear? 5 And on Mr. McClellan's on -- particularly on 6 the C4, where you added the "generally" in the second 7 paragraph to accommodate the concern that there might be 8 some auditor who says, "I am not allowed to hold in 9 abeyance," I do wonder whether the second sentence was 10 not similarly, you know, revised. 11 You sort of stuck the "generally" and I was 12 wondering if it ought to read something like, 13 "In cases where a prior audit is under appeal 14 and the audit for the subsequent periods is not 15 held in abeyance," 16 Because it's not clear to me as he said, "It's 17 not clear to me," as he said, did you mean -- you know, 18 you're nodding. 19 I think you're understanding where I am, what 20 I'm wondering, whether you just added the generally and 21 neglected the second sentence and have a conflict? 22 MS. ORENDT: Well, actually, I the "generally," 23 I believe was there all along. 24 We added the second sentence and, yes, you're 25 right. I believe that clarification should be made and 26 the additional phrase, "in cases where the decision has 27 been made." 28 It was -- the intent of that second sentence 42 1 was simply if there's a prior audit under appeal for a 2 certain area, there is other areas that we can get 3 started on. 4 MS. MANDEL: If you don't hold in abeyance? 5 MS. ORENDT: Correct. 6 MS. MANDEL: Okay. So, you -- 7 MS. ORENDT: So, we need to add that additional 8 phrase -- 9 MS. MANDEL: -- need to clarify that. 10 MS. ORENDT: -- to second sentence. That would 11 be helpful to clarify that. 12 MR. HORTON: What would you be afraid of? 13 MS. ORENDT: I can see now -- 14 MS. YEE: Can you reiterate -- repeat that, 15 Ms. Orendt? 16 MS. MANDEL: Well, what I wrote fastly was, 17 "It currently says in cases where a prior audit 18 is under appeal," 19 And, so, I just added, 20 "And the audit for the subsequent periods is 21 not held in abeyance." 22 But I wrote that really fast while he was 23 talking. 24 MS. ORENDT: So, yeah, I don't know if we'll 25 use that exact language, we'll come up with language to 26 convey that message. 27 MS. MANDEL: Well, we're going to ask the -- if 28 this goes forward, you are asking the Board to send it 43 1 to publication, so -- 2 MS. YEE: Right. 3 MR. LEONARD: Yep. 4 MS. MANDEL: I guess you'll have to have -- 5 MS. ORENDT: And the other change, I believe, 6 that might accomplish the same is in cases -- 7 MS. MANDEL: Then I'd like my language unless 8 you come up with something faster by time this is going 9 to be voted on. 10 MS. ORENDT: "The Board may begin," instead of 11 "will." 12 I don't know if that -- that doesn't use 13 language that is prescriptive in any -- 14 MS. MANDEL: Well, no, you see, because now 15 you've messed it up. 16 Because if you do not hold the subsequent audit 17 in abeyance, I can tell you the taxpayers are going to 18 want you to start with other stuff that you see in this 19 particular period, not the stuff they currently have 20 under appeal. 21 That's my guess. And they're all nodding yes. 22 MS. ORENDT: Right, right. 23 MS. MANDEL: So, you don't want to change the 24 "will" to a "may," you just want to clarify that 25 sentence, as I suggested, that it's only where you've 26 got an appeal and you're not holding the subsequent 27 audit -- 28 MS. ORENDT: Right. 44 1 MS. MANDEL: -- in abeyance. 2 MS ORENDT: Right. 3 MS. MANDEL: So, just add that language. 4 MS. ORENDT: Okay. 5 MS. YEE: Okay. 6 MR. MC GUIRE: So, the sentence would read, 7 "In the cases where a prior audit is under 8 appeal and the audit for the subsequent period 9 is not held in abeyance, the Board will begin 10 the audit."? 11 MS. MANDEL: Correct. 12 MR. MC GUIRE: -- for the current? 13 MS. MANDEL: I think that deals with 14 Mr. McClellan and then you probably want to address the 15 rest of the -- 16 MS. ORENDT: Okay. In cases where the 17 location -- I believe it was C1, the last sentence of 18 the first paragraph does go on to say, 19 "Requests will be granted unless Board staff 20 determines the move will significantly delay 21 the start or completion of the audit or if the 22 Board does not have adequate resources 23 available to conduct the audit at the requested 24 location." 25 A few things come to mind as to the thinking 26 behind the need for that sentence. First is, we do have 27 limited resources in certain of our offices. And if, in 28 fact, we have everyone wanting to get their audits done 45 1 in the San Diego office, we couldn't possibly do that. 2 Now, obviously, that's not going to happen, 3 that everyone would want their audits done in the 4 San Diego office. But if, in fact, they want it 5 transferred somewhere and then they say they can't, we 6 usually ask for a commitment that they're going to 7 provide the records that we need, a verbal commitment. 8 We may confirm that in writing. 9 Many times the taxpayer doesn't have those 10 records and they won't allow them to leave. If they 11 have a representative -- and I have an example where a 12 representative is located in Florida -- but none of the 13 original books and records are needed for an audit, 14 either are there or will be moved there. So, we do want 15 to take into consideration whether the requests are -- 16 the reason for the requests may be -- either may be or 17 either result in a delay in starting or completing the 18 audit. 19 I don't believe the language mandates anything. 20 And, in fact, the first sentence does say, 21 "It will be granted." 22 And, generally, we do grant those requests. 23 And generally, as long as they are reasonable, we would 24 continue to do that. 25 So, I don't know if that addresses or if you're 26 looking for specific language that you believe may 27 alleviate specific -- 28 MR. MC CLELLAN: Well, in the -- 46 1 MS. ORENDT: -- specific concern. 2 MR. MC CLELLAN: -- the current language, in my 3 opinion, is not narrow in scope, No. 1. 4 That was response to our initial issue with 5 this particular section. You know, perhaps if it -- if 6 a significant delay was defined? 7 So, in other words, if -- if you could say, 8 look if it's going to take 60 days beyond the initial 9 start date to begin this audit through the transfer, 10 then that may be considered significant. 11 But another concern is with respect to the 12 staff. You know, a taxpayer may have a representative, 13 you know, out of state. I can see more concern there. 14 I think there is a more valid concern there. But, 15 obviously, we represent as a company, clients throughout 16 the state. 17 And I think it's the taxpayer's right to hire 18 who they -- who they want to. We, obviously, also have 19 a district office that's very close to our office. 20 So, if there's a district that selects a 21 particular audit and has an auditor ready to go, I mean, 22 and get out there and start the work, really, the 23 question is whether or not that audit would be permitted 24 to be transferred if -- if the taxpayer were to assure 25 that records are going to be made available and that we 26 do everything on our part to make sure records are 27 available and whether or not the taxpayer's rights to 28 have that would be abridged by this section with no real 47 1 reason. 2 MS. ORENDT: We do have situations where there 3 may be a tax representative and they may have many 4 clients. And they -- they impede the progress or the 5 start of the audit because they seem to only want or be 6 able to handle a few audits at a time. 7 And when you have a backlog of audits where 8 there is a representative -- a generic representative I 9 am speaking of, not any particular one -- where you may 10 have ten or twenty, it's not -- I mean, that's a real 11 example, ten or twenty audits lined up and you can't 12 start more than -- or work on more than one or two or 13 three at a time, then that does impede our ability to 14 start an audit. And it does delay, certainly, getting 15 our work done. 16 So, the limitation on resources on either side 17 may impede our ability to do the audits that are 18 selected. 19 MR. MC CLELLAN: Well, and that obviously could 20 be the case in the home district. And I don't 21 necessarily see a problem in putting a requirement on a 22 taxpayer to make records available timely. Obviously, 23 that's part of the intent of this regulation here. 24 But to simply say that the Board may or may not 25 transfer an audit when a taxpayer requests that it be 26 transferred and be handled by a particular 27 representative or at another office location because 28 maybe that District office doesn't have an auditor 48 1 that's ready to go on that particular audit, even though 2 the taxpayer is prepared to provide all of the records 3 in a timely fashion. 4 It -- in its current state, it essentially 5 gives the Board and the audit staff too much discretion 6 to -- to deprive a taxpayer of the right to make that 7 choice. 8 MS. YEE: Let's -- let me have staff respond to 9 that. 10 I mean, is that really what's going to be the 11 practical effect? 12 MS. ORENDT: I don't believe it is. 13 MS. YEE: I mean, I am having a hard time with 14 this. I mean, if we're identifying a taxpayer for 15 audit, I would hope that it's with the thought in mind 16 that we have got resources, we're ready to go and we 17 kind of know where that audit's going to take place. 18 And I really would hate to kind of do much to 19 this -- to the language of this provision that narrows 20 flexibility on both sides. 21 And -- but I just don't think on a practical 22 level that that situation is going to occur that much. 23 I actually see the situation Ms. Orendt has raised 24 occurring much more frequently, where you have a 25 representative who has got multiple taxpayers and the 26 time allocated to each creates difficulties in terms of 27 timing or when to start and get an audit completed. 28 But I think from a practical perspective, once 49 1 a taxpayer's been identified for audit, I think we're 2 kind of ready to go at a particular location with 3 particular resources available for that audit, yes? 4 MS. ORENDT: Correct. When we complete the 5 audit selection, it is based on the resources available. 6 And it's not assigned to an auditor until we have an 7 auditor available to start that audit. 8 And then the point of contact -- that's the 9 point of contact made with the taxpayer. 10 MS. YEE: And to your point, Mr. McClellan, I 11 mean, the whole basis for my support for this regulation 12 is our limited resources. 13 MR. MC CLELLAN: Uh-huh. 14 MS. YEE: And that -- I mean, I can't be 15 any more clear about that. 16 I've heard from so many taxpayers about the 17 length of time it takes to complete an audit. And what 18 we've been trying to do in this regulation, I think 19 we've tried to strike a good balance is to really 20 lay out the expectations for all parties to an audit as 21 to how to reach that goal. 22 And certainly the timely furnishing of records 23 is a key part of that, but also as it relates to how 24 we're going to consult with the taxpayer from the very 25 beginning of this process, throughout the process and -- 26 as well as who we're going to involve, so, it's very 27 clear from the outset where the roles and 28 responsibilities are going to lie as well as the 50 1 expectations about time frames. 2 So, I mean going forward -- I don't expect this 3 agency is going to be getting additional resources. And 4 with the limited resources we've got, we're trying to 5 figure out how to work smarter. 6 And the way that we're going to do that is by 7 being very, very clear with taxpayers and our own staff 8 internally about what's going to take place during the 9 course of an audit and, hopefully, insure consistency 10 among districts in terms of how audits will occur more 11 timely. 12 So, I mean at this point I am -- I would hope 13 that we would just allow the provision under subdivision 14 1, location of the audit to see how that works. 15 But my sense is that we're not going to be 16 identifying taxpayers for an audit if we don't feel like 17 we're equipped with the resources to pursue those 18 audits. 19 MR. MC CLELLAN: Which I understand. Of 20 course, you're not initiating -- well, the auditor 21 initiates contact with the taxpayer, generally to set up 22 an appointment to set up a meeting to begin the audit. 23 The question is whether or not that taxpayer 24 should have the right to choose their representative, 25 even if their representative isn't located within the 26 home district. 27 And, essentially, what I'm gathering is that 28 the Board isn't necessarily interested -- or the staff, 51 1 I am sorry, isn't necessarily interested in whether or 2 not the taxpayer wants to hire a representative outside 3 of their district, but more interested in whether or not 4 they have the immediate auditor ready to go to on the 5 audit. 6 I don't think that that necessarily furthers 7 the -- the intent of this regulation. Because if you 8 end up with an adversarial audit from the get-go, it's 9 going to slow the process. It's going to end up with 10 more appeals of the audit. 11 So, again, if -- you know, if -- if what staff 12 is saying is correct, that really this isn't going to 13 come into play unless it really is problematic. And I 14 recognize that there -- there needs to be some 15 correction or some -- some more direction with respect 16 to the audit process to increase efficiency. I think 17 that's a very good idea. 18 But, again with the language as it stands, it 19 potentially permits the staff to dictate whether or not 20 a taxpayer may choose to transfer an audit. 21 MS. YEE: Mr. McClellan, we have no interest -- 22 I have no interest in really getting in the middle of a 23 decision about who taxpayer decides to retain as a 24 representative. 25 MR. MC CLELLAN: Okay. 26 MS. YEE: Okay. And I would hope that the 27 staff is not interested in intervening in that kind of a 28 decision. 52 1 MR. MC CLELLAN: You know what, I apologize. 2 MS. YEE: However -- 3 MR. MC CLELLAN: Okay. 4 MS. YEE: -- if the situation occurs where 5 there is a representative representing a taxpayer that 6 has a location issue that affects the timely completion 7 of an audit or undertaking of an audit, we're going to 8 work with you on that. 9 MR. MC CLELLAN: Okay. 10 MS. YEE: Okay. I mean, we're interested in 11 kind of getting it completed, as you -- as the taxpayer 12 will be as well. 13 MR. MC CLELLAN: Sure. 14 MS, YEE: But I would just say, let's kind of 15 leave the distrust behind us and allow this to work. 16 We're trying to -- and what -- we're not here to try to 17 impinge on taxpayer's rights, that's not the point. 18 The point is really, hopefully, to work with 19 you. We know that audit -- time committed to audits is 20 money on both sides. 21 And we really want to allow this reg to get 22 into place so that we can -- with limited resources on 23 all sides of an audit -- try to get to where we need to 24 go. 25 Mr. Horton? 26 MR. HORTON: I agree with you, Madam Chair. I 27 mean, I would only add that, you know, the capacity of 28 the consultant is not necessarily a consideration of 53 1 whether or not there is adequate conference rooms or 2 adequate staffing on the part of the consultant to 3 address the number of clients that they may have. 4 I mean, that's a totally different decision 5 that's being made by someone other than the Board of 6 Equalization. 7 And I think that staff is appropriate -- is 8 taking the appropriate action not to consider those 9 factors. And that if they are, in fact, causing a 10 delay, I think what we might want to do is encourage the 11 consultant to hire more people or get a bigger office. 12 And this is not to be punitive, but delaying 13 the audit because of those reasons just doesn't seem to 14 have a lot of logic to me. I do believe that the 15 taxpayer should be able to select whomever they want. 16 They have that right. And that is in the best interests 17 of the taxpayer to have the audit resolved as timely as 18 possible. And it's generally in the best interests of 19 the taxpayer to have the audit conducted where the audit 20 records are, generally in the best interests. 21 It may not in the best interests of the 22 consultants to have to travel to the taxpayer's office 23 to work with the auditor. It may be more convenient for 24 the consultant to have the records shipped to their 25 location or maybe a better means for them to manage 26 their client base. But I don't know if that is a 27 consideration of the client or in the best interests of 28 the client, the taxpayer or the Board of Equalization. 54 1 I would venture to say that if that discussion 2 was made public, a client might have an issue with it. 3 So, I'm in concurrence with Madam Chair, I 4 don't really see a reason why we should change this 5 particular language. 6 MS. STEEL: Madam Chair? 7 MS. YEE: Ms. Steel and then -- 8 MS. STEEL: I have a few concerns here for this 9 regulation change. 10 First one that I heard from speakers were 11 regarding that their one size fits all, it's not going 12 to work for big companies comparing to small ones. And 13 then there is very much bad language, it's totally 14 open-ended for C4 that we've been talking about that -- 15 I don't think it -- I believe that it's a good policy to 16 have multiple audits at the same time. 17 And then C7, that there is -- we give so much 18 discretion to the auditors when the language represents 19 as near the end of an audit or near the end doesn't mean 20 it's not really clarifying for the taxpayers. 21 And then third one is future, every time we 22 make this kind of regulations we may be adding penalty 23 later on to taxpayers. So, it's going to get tougher 24 and tougher. Seems like most regulations that we are 25 changing, it gets really tougher for taxpayers to 26 respond while going through the process. 27 So, I don't think this approach is really good 28 and we really have to change the bad language first 55 1 before we vote for this change. 2 MS. YEE: Thank you, Ms. Steel. 3 Any other comments from the Members? 4 Mr. Davis, you had one final comment? 5 MR. DAVIS: Yeah, I just wanted to address what 6 Mr. Horton said about the consultants being the cause of 7 hanging up the auditors due to space requirements. 8 MR. HORTON: No, no, no. 9 MS. YEE: No, no, that's not what he said. 10 MR. DAVIS: Well, due to having too many 11 clients and, you know, having to -- 12 MR. HORTON: Let me -- let me clarify. Because 13 that -- that may be what you understood me to say. So, 14 out of respect to that, let me clarify. 15 If, in fact, that is the case, I think the 16 premise for the statement is that we have to respect 17 professional discretion in that both the auditor, as 18 well as the taxpayer, should be in a position to 19 exercise their professional discretion. 20 And on the part of the auditor, if, for 21 example, part of the delay is attributed to those 22 factors which I mentioned, the auditor should have the 23 discretion to determine if that warrants a delay. 24 The taxpayer should have the discretion as well 25 to determine if that warrants a delay. Because 26 typically a delay in an audit to the taxpayer is 27 additional interest, potential penalties. And, so, we 28 would not want the taxpayer to incur that, if in the 56 1 professional judgment of the principals in this case, 2 which happens to be the taxpayer, that the delay is 3 attributed to the lack of space, the lack of staffing to 4 address these issues currently or in a timely fashion. 5 I don't think anyone would want that to occur. 6 In fact, if I was blessed with that problem, I would 7 hire more people. 8 MR. DAVIS: And conceptually I have no argument 9 with anything that you said. 10 I guess I'm concerned because I don't know of 11 any consultants who are doing what you hypothecate 12 there -- who are hanging up audits due to space 13 requirements or inadequate staffing. 14 MR. HORTON: Neither -- and I don't want to go 15 back and forth, Madam Chair. 16 MS. YEE: Yeah. 17 MR. HORTON: But this is a little different 18 than the Assembly -- but neither do I, sir. 19 I mean -- and again, I mean, as I said from the 20 onset is that I don't know that -- that we can -- we 21 can -- we can -- on the existing law, under existing 22 policy and procedures, we can do all of this currently. 23 What we're attempting to do, as I see it, is to 24 codify an understanding of what we perceive to be 25 efficient and, thus, the reason or the language, 26 "generally, may, if this," and so forth. 27 But we're certainly not trying to impede the 28 professional discretion or professional judgment, we 57 1 want to incorporate that somehow and maintain that. 2 There is no -- I mean, I understand and 3 appreciate the fear. In fact, it was kind of 4 interesting to see that that fear was driving a lot of 5 the concern. But it doesn't appear that the elements 6 relative to the fear exist any more. 7 And let me share as well, I think this -- we 8 are trying to get at the exception. I think it is the 9 consensus of the Board that the rule is that most of the 10 taxpayers, the practitioners, do everything that they 11 can humanly possibly do to protect the interests of 12 their clients, in our case protect the interests of the 13 State of California. 14 I think everyone's above board and generally 15 honest. It is when you run into that exceptional 16 situation where there is an unreasonable delay, 17 generally speaking, if there is and if in the 18 professional judgment of the Board, after notifying all 19 of the parties why this delay exists, they're able to 20 take certain actions that protects the taxpayer, this 21 protects the taxpayer, plus it expedites the process and 22 reduces the potential interest. 23 At that point, if there is issues not germane 24 to the State of California or the taxpayer, I don't know 25 that the professional ought to take those issues into 26 consideration. 27 MS. YEE: Okay. Thank you very much, 28 Mr. Horton. 58 1 Any other comments, Members? 2 Okay. 3 MR. LEONARD: Madam Chair? 4 MS. YEE: Yes, Mr. Leonard? 5 MR. LEONARD: Just to summarize my opinion, 6 these aren't ready for prime time. 7 I first was intrigued because there was an 8 allegation that tax -- certain taxpayers had organized 9 in some kind of conspiracy to withhold data and to stall 10 audits. 11 And in looking at our audit information, turns 12 out not to be true. Certainly this is an adversarial 13 proceeding to begin with, when an auditor comes in and 14 says, "I don't believe you. I want to see all of your 15 records." 16 I mean, that's -- they don't have to say it, 17 that's what an audit's about. We want to make sure you 18 honestly signed your return. 19 Without better -- to me the burden is on the 20 Department to make some kind of case and no case has 21 been made that there's a widespread act of misbehavior 22 by taxpayers or their representatives which makes audits 23 harder to do, more expensive, harder to get fair 24 results. 25 Were that the case, then these regulations 26 might be in order. It's a delicate balance of power. I 27 think this Board is very good and the questions you've 28 been asking today that reflect on that, that it -- it is 59 1 a delicate balance of power. 2 We do have the right and the duty to audit the 3 taxpayer's records. We need to take advantage of that 4 as appropriate. 5 Taxpayers have rights and responsibilities as 6 well, including the rights from protection from 7 harassment from their government. 8 At the best case, we know audits are expensive 9 to the taxpayer. They're time consuming to us. And we 10 need to select them in the best manner possible. 11 Miss Orendt, you made a misstatement, I'm 12 going to say in advance you didn't mean this, but when 13 you said that after a lengthy hot audit you hoped there 14 was a liability after spending that much time on it, I 15 know that's wrong. And you didn't really mean that. 16 Because that's not our goal. Our goal is a 17 fair audit, whatever the number is, plus, minus or zero. 18 We should be as concerned with refunds as we are with 19 liabilities and that's hard to do. I mean, that is 20 really tough. 21 And to -- for what extent we have now the audit 22 manual as it's developed over the years, it seems to 23 work. There are exceptions, that generally get appealed 24 to here. There are other issues and each of our Board 25 Members, like me, have intervened and tried to help the 26 taxpayer get an auditor they can communicate with and 27 call your staff to do that or ask Taxpayer Rights 28 Advocate to help us out. Because there are exceptions 60 1 to that. But we should not govern by exceptions. 2 And my concern is is at this point, all we have 3 is a few anecdotes. Now, we don't have proof or 4 evidence to make the case. And it's just not ready. 5 MS. YEE: Thank you, Mr. Leonard. 6 I'm prepared to make a motion to approve and 7 authorize for publication this -- the regulation before 8 us. 9 I will say we've been talking about exceptions 10 and extraordinary circumstances and I think that the 11 exceptional situation that I see for us is really -- we 12 are all working under very, very limited resources. And 13 while much of this is really codifying existing 14 practice, I think it does make clear how we intend to 15 continue to do the work that we are charged to do under 16 some pretty severe constraints. 17 So, with that, I will move to approve and 18 authorize for publication proposed regulation -- the 19 proposed regulation before us. 20 MS. MANDEL: With the -- with the amendment? 21 MS. YEE: Yes, with the amendment as you 22 suggested, Ms. Mandel. 23 Is there a second? 24 MR. HORTON: Give me a second. I just want to 25 read the claim for refund. 26 MS. YEE: Okay. 27 MR. HORTON: Madam Chair, if I may? 28 MS. YEE: Yes, Mr. Horton? 61 1 MR. HORTON: C7, let me first say I am actually 2 okay with moving the regulation for the purpose of 3 communicating to staff, giving them some direction on 4 how to proceed to expedite the audit and, at the same 5 time, maybe communicating to the taxpayers some 6 expectations. 7 The claim for refund section, I really don't 8 see the necessity for that. I just can't quite get 9 there, Madam Chair, in that the Board -- the auditors 10 should be doing this anyway. 11 They should be -- if they identify a claim for 12 refund, they should be processing the claim for refund. 13 There should be no implications that it should be 14 delayed at all. 15 And even though this does not say it shall or 16 should and so forth, the concern is is that it increases 17 the probability. It modifies the culture or the thought 18 process. 19 When, in fact, if it -- if it were the other 20 way and we did an audit and there was a -- the audit 21 resulted in a credit and the auditor -- the taxpayer 22 brought something else up and it was a debit, I doubt if 23 the auditor would say, "Well, let me finish this audit 24 and issue you a credit and send you a check. We are 25 going to deal with that debit later on." 26 Typically, you know, you want the sword to sort 27 of cut both ways when you're talking about equity in 28 your assessment and your legislative and regulatory 62 1 authority. 2 I would just ask that we discuss that aspect 3 just a little more, Madam Chair. And I would really 4 like to have your insight on this because you've been 5 dealing with this a lot more than I have. 6 And let me preface that by saying that, you 7 know, I would -- I would follow your judgment in that 8 you have been dealing with this for a while. 9 MS. YEE: Well, first let me withdraw my motion 10 for purposes of discussing this. 11 I guess from my perspective, if we were to 12 remove this paragraph 7, I'm not sure that all much 13 would change in the world in terms of practice. 14 I think if anything was really kind of a 15 tickler so that during the course of the audit that we 16 certainly want to give the opportunity for the taxpayer 17 to come forward with respect to any claims for refunds 18 to the effect -- to the extent that, as Ms. Orendt had 19 commented, we can give effect to any credits that might 20 be appropriate. 21 So, if we were to remove the provision, I'm not 22 so sure that it would harm anything. It's just 23 something that's really -- I mean, in my mind it was 24 really more kind of a tickler during the course of the 25 audit as one -- one issue to bear in mind. 26 So, I could live either way. 27 MR. HORTON: Madam Chair, if I may? 28 MS. YEE: Yes? 63 1 MR. HORTON: We might be able to accomplish the 2 goal of communicating to staff by striking the last 3 sentence, 4 "A claim for refund that is presented near the 5 conclusion of the audit may be addressed 6 separately." 7 Leave that to the discretion of the taxpayer 8 and the discretion of the auditor. 9 I think personally they should address it 10 concurrently. I think we've got issues with debit and 11 credit interest and offsetting. 12 I think we have accounting issues of, you know, 13 having the FBO filed subsequently and then having to 14 consolidate the two. That's just very, very -- can be 15 very, very complicated not that efficient. 16 I like the adjustment the judgment made to C4. 17 And I think C1 is right on the mark. So -- 18 MS. YEE: Okay, Mr. Horton, I -- Ms. Mandel? 19 MS. MANDEL: Can I just -- you know, I have -- 20 I kind of have a rule when I look at these things of, 21 you know, what -- what's going to happen when we're -- 22 when no one's here any more that worked on it? 23 MR. LEONARD: You'll have to stay. 24 You've been here a while. 25 MS. MANDEL: Well, I've been here a while, but, 26 you know, we sit in these meetings sometimes and, you 27 know, you hear Legal say, "Well, that would never happen 28 at audit. The auditor would never do that." 64 1 And then the taxpayers say, "Oh, yeah, but the 2 auditors do that." 3 So, if that sentence is struck, I'm just 4 curious about the "should present," whether some, you 5 know, auditor is going to say, "You didn't present it or 6 I'm not even going to, you know, send it anywhere." 7 And maybe if it gets added at the end of that 8 sentence, it's just in order to facilitate timely 9 something. 10 MR. HORTON: Yeah, that makes sense. 11 MS. MANDEL: But we need the something. Let's 12 see -- 13 MS. ORENDT: Well, I wanted to point out that 14 in the paragraph above, No. 6, Opening Conference, we do 15 spell out during the opening conference items to be 16 discussed, include, not limited to, claims for refund is 17 included. 18 MR. HORTON: Yeah, it's on there. 19 MS. ORENDT: It is included in this. 20 And my opinion, perhaps if you wanted to 21 include -- include anything in that, maybe, 22 "Auditor should encourage the taxpayer to 23 present claims for refund at the beginning of 24 the audit." 25 MR. HORTON: Yeah. 26 MS. ORENDT: But it is covered specifically as 27 a topic of discussion that the auditor should cover in 28 the opening conference. 65 1 MR. HORTON: One of those little checkmarks. 2 MS. YEE: Right, exactly. 3 MR. HORTON: We check it off. 4 MS. YEE: So, we either -- so, either we try to 5 modify paragraph 7, as suggested by Ms. Mandel, or maybe 6 delete? 7 MS. ORENDT: Delete it in its entirety, yes. 8 MS. YEE: Yeah. 9 MS. ORENDT: Yes. 10 MS. YEE: To really give us -- 11 MS. ORENDT: Staff is okay with that. 12 MS. YEE: So, deleting all of paragraph 7 -- 13 MS. MANDEL: Okay. 14 MS. YEE: -- since it is included as a topic 15 for the opening conference, in paragraph 6, okay. 16 And that way we're not trying to put 17 ourselves -- okay. 18 All right. So, we have then the regulation 19 before us. Let me remake my motion to approve and 20 authorize for publication the proposed regulation with 21 the suggested revision to -- 22 MS. MANDEL: Second paragraph of C4. 23 MS. YEE: -- right, the second paragraph of C4 24 and with the deletion of paragraph 7 under subdivision 25 C. 26 Okay, is there a second? 27 MR. HORTON: Second. 28 MS. YEE: Second by Mr. Horton. 66 1 Discussion? 2 Please call the roll. 3 MS. RICHMOND: Madam Chair? 4 MS. YEE: Aye. 5 MS. RICHMOND: Mr. Leonard? 6 MR. LEONARD: No. 7 MS. RICHMOND: Ms. Steel? 8 MS. STEEL: No. 9 MS. RICHMOND: Mr. Horton? 10 MR. HORTON: Aye. 11 MS. RICHMOND: Ms. Mandel? 12 MS. MANDEL: Aye. 13 MS. RICHMOND: Motion carries. 14 MS. YEE: Thank you very much, Members. And 15 thank you, staff, for your continued work with the 16 interested parties. 17 And to the interested parties, thank you much 18 for all your diligence and patience with this. 19 We will recess until 1:30, reconvene at that 20 time. 21 Thank you. 22 ---o0o--- 23 24 25 26 27 28 67 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, JULI PRICE JACKSON, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 NOVEMBER 17, 2009 I recorded verbatim, in shorthand, to 10 the best of my ability, the proceedings in the 11 above-entitled hearing; that I transcribed the shorthand 12 writing into typewriting; and that the preceding pages 1 13 through 67 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: December 23, 2009 17 18 19 20 21 22 ____________________________ 23 JULI PRICE JACKSON 24 Hearing Reporter 25 26 27 28 68