1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 JUNE 16, 2010 10 CORPORATE FRANCHISE AND PERSONAL INCOME TAX HEARING 11 APPEAL OF 12 GARY LAUB 13 NO. 468084 14 AGAINST PROPOSED ASSESSMENT OF 15 ADDITIONAL INCOME TAX 16 17 18 19 20 21 22 23 24 Reported by: Juli Price Jackson 25 CSR No. 5214 26 27 28 1 1 P R E S E N T 2 For the Board Betty T. Yee of Equalization: Chair 3 Jerome E. Horton 4 Vice-Chair 5 Barbara Alby Acting Member 6 Michelle Steel 7 Member 8 Marcy Jo Mandel Appearing for John 9 Chiang, State Controller (per Government Code 10 Section 7.9) 11 Diane G. Olson Chief 12 Board Proceedings Division 13 14 For Board of Grant Thompson Equalization Staff: Staff Counsel 15 16 17 For Franchise Tax Suzanne Small Board: Tax Counsel 18 Jean Cramer 19 Tax Counsel 20 For Appellant: Peymon Mottahedeh Representative 21 Gary Laub 22 Taxpayer 23 24 ---oOo--- 25 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 JUNE 16, 2010 4 ---oOo--- 5 MS. OLSON: Our next item is B18, Gary Laub. 6 Please come forward. 7 Board Proceedings has been informed that 8 Mr. Laub has new counsel, is Peymon Mottahedeh. 9 MS. YEE: Good afternoon. 10 Let me have Appeals introduce your matter. 11 Members, we are on item B18, Gary Laub. 12 Appeals? 13 MR. THOMPSON: Good afternoon, Grant Thompson 14 for the Appeals Division. 15 The issue in this appeal is whether Appellant's 16 claim for refund is barred by the statute of 17 limitations. 18 MS. YEE: Thank you, Mr. Thompson. 19 Good afternoon, gentleman. 20 MR. MOTTAHEDEH: Good afternoon. 21 MS. YEE: If you'll introduce yourselves for 22 the record? 23 You have ten minutes for your presentation. 24 MR. MOTTAHEDEH: Mr. Peymon Mottahedeh, 25 representative for Mr. Gary Laub. 26 MR. LAUB: Gary Laub. 27 MS. YEE: Okay, please proceed. 28 TRHT: MR. MOTTAHEDEH: This case there are 3 1 some newly discovered evidence that was submitted to the 2 Board by Mr. Laub before he obtained counsel. And it 3 was provided to the court on the 28th of May. 4 I want to make sure that each of the Board 5 Members has that document to discuss. That's going to 6 be the subject of this hearing. 7 MS. YEE: Sorry, could you refer to the 8 document again? 9 MR. MOTTAHEDEH: It's the letter dated 10 May 28th, 2010 from Mr. Gary Laub to the State Board of 11 Equalization, Board Proceedings Division. 12 MR. THOMPSON: To clarify, this is a May 28th, 13 2010 submission. 14 MR. MOTTAHEDEH: Yes. 15 MR. THOMPSON: I believe the Board has the 16 exhibits to that filing. 17 The cover letter, which is a page and a half, 18 was returned because the time for briefing had 19 expired. 20 MR. MOTTAHDEH: It's actually a two-age IRS 21 computer transcript printout. 22 MS. MANDEL: That's -- 23 MR. MOTTAHEDEH: It looks like this 24 (indicating). 25 MS. MANDEL: -- what we have as the Appellant's 26 exhibits, the two-page IRS transcript. 27 MS. YEE: Okay. 28 MR. MOTTAHEDEH: Very good, okay. You have the 4 1 relevant. 2 Well, the issue here basically is whether 3 Mr. Laub is entitled to a refund. And the reason the 4 FTB contends that he's not entitled to a refund is 5 because none of the statute that will allow refund 6 apply. 7 Well, we just discovered that there is a -- 8 another provision of the Revenue and Taxation Code that 9 does allow refund that does apply in this case. And, of 10 course, FTB has cited that his brief as Section 19311, 11 which allows an adjustment to be made, a refund to be 12 made within two years of a final federal determination. 13 And, so, in this case, according to the record, 14 all the funds that were taken from Mr. Laub, the last 15 payment was March 1st, 2007. So, that doesn't, you 16 know, help us there. 17 But what happened is that he filed the federal 18 return for year 2000, as you see in this documents, on 19 the top right taxpayer is indicated. And it shows -- 20 this document shows any minus shown below signifies a 21 credit amount. So -- and below that, the other headline 22 is "Information from the return as adjusted." 23 So, any adjustments would be reflected on the 24 bottom of this page or on the second page of this 25 document. 26 And if you proceed to the second page of this 27 document, you will notice on the very first line, it 28 says, "Tax return filed." The date is 06-09-2008. It 5 1 shows amount of 893. Two lines below that it shows 2 earned income credits paid 04-15-2001 for the amount of 3 minus 2,350. 4 Now, I need to explain it a little bit for the 5 Board why you would see a date of 2001 appearing after 6 the 2008. It seemed like why are we going back seven 7 years? The reason for that is because IRS, on their 8 system, they recognize that credits have been earned 9 from the time the tax return was due. 10 So, on the printout of the IRS they show the 11 date that earned income credit should have been given, 12 had the return been filed timely, which in this case 13 would have been April 15th, 2001. Because again this is 14 for year 2000 we're speaking. 15 So, the tax return for year 2000 was due on 16 April 15th, 2001 and, therefore, the earned income 17 credit is posted as of that date, which it should have 18 been, but in reality, the real date of that is, 19 obviously, after -- the date the tax return was filed, 20 which is June 9, 2008. 21 So, I want to explain that to you because, you 22 know, this is a key point to look at this document and 23 understand what it means. And that's the reason why 24 below that the credit transferred out. 25 The line below also shows $1,457. Again the 26 date is shown April 15th, 2001. That's not the date 27 actually the credit was transferred out because, 28 obviously, he got no credit until he filed his tax 6 1 return on June 9th, 2008. But they posted it for their 2 internal reasons of the IRS effective the date the tax 3 return was due. And the earned income credit -- it 4 should have been given and the credit should have been 5 transferred out to other period at that time. 6 So, therefore, this IRS document shows that 7 there was an adjustment by IRS as a result of the tax 8 return which was filed in June 9th, 2008. 9 And as of that date -- now we can go back to 10 the first page, okay, and you can see further 11 explanations by the IRS on the bottom half of the page 12 where under "Adjusted Gross Income," shows 4,165 and 13 taxable income per return 893. And again total 14 self-employment tax of 893 is the last line. 15 So, there was an adjustment made by IRS on this 16 tax account on June 9, 2008. And, therefore, within two 17 years of June 9, 2008 Mr. Laub was entitled to make a 18 claim for refund under Code Section 19311 and, 19 therefore, he's entitled to a refund of the amounts 20 because his taxable income is recognized by IRS as being 21 so small he actually was entitled to credit by the IRS 22 to future years. And, therefore, on that basis, he's 23 entitled to a refund. 24 MS. YEE: Okay. Mr. Laub, do you have anything 25 at this time? 26 MR. LAUB: He's pretty much summed it up. 27 MS. YEE: Okay. We'll give you both five 28 minutes on rebuttal. 7 1 Franchise Tax Board? 2 MS. `: Good afternoon, Madam Chairwoman, 3 Board Members, my name is Suzanne Small. To my right is 4 Karen Smith. We're representing the Franchise Tax Board 5 in this matter. 6 As fully briefed, Mr. Laub failed to file his 7 claim for refund in the form have a tax return until 8 4-15-08 for the 2000 tax year. Therefore, his claim was 9 not within four years of the due date of the return. 10 Further, as acknowledged by Appellant's 11 counsel, his claim was not filed within one year of the 12 last payment applied to the account. 13 Now they have raised at appeal that they're 14 entitled to a refund under 19311. However, under that 15 section you can claim a refund within two years of a 16 change or correction by the IRS. However, in this case 17 this was not a change or correction by the IRS, Mr. Laub 18 failed to file a tax return until 2008. All the IRS did 19 was accept his tax return in 2008. That is not 20 considered a change or correction under 19311. 21 If you have any questions, I'll be happy to 22 answer them. 23 MS. YEE: Thank you, Ms. Small. 24 You have five minutes on rebuttal. 25 MR. MOTTAHEDEH: This is a change and 26 correction. Very often change and correction happens 27 because a person who has not filed a return later on 28 does file a return. 8 1 And the burden of proof is on the FTB to 2 provide case law saying what the law doesn't apply when 3 the person's adjustment's made as a result of a person 4 late filing. 5 The term in the statute is "final federal 6 determination." It's very broad. It's not limited to 7 what's the reason for it. Was it a federal refund 8 claim? Was it federal tax court decision or a 9 collection due process hearing decision or an audit or 10 filing a late return? 11 It could be many different scenarios under 12 which the final federal determination is made. And 13 there is nowhere indicating in the law that the 14 legislature intended a late -- the adjustment made based 15 upon a late filed return should be excluded in the 16 definition of federal determination. 17 MS. YEE: Okay, thank you. 18 Mr. Laub, anything further? 19 MR. LAUB: I'd like to add that it was my money 20 that wasn't even due. And that was finally determined 21 when it was filed showing nothing was due. 22 The simple reason I didn't file it at the time 23 was my business had declined so drastically, I was 24 barely hanging on by a straw. And I knew nothing was 25 going to be owed. So, I wasn't pressed to really file 26 it, even though I should have. 27 And, so, when I finally did file it, showed 28 zeroed out just like I had been saying all along. 9 1 MS. YEE: Okay, thank you. 2 Questions, Members? 3 MS. MANDEL: I'm just curious about something? 4 MS. YEE: Yes, Ms. Mandel? 5 MS. MANDEL: Maybe this just an IRS practice -- 6 the transcript is showing that IRS -- looks like IRS 7 credited to the following tax year. 8 MS. SMALL: I'm sorry, but FTB doesn't have a 9 copy of what you're looking at. 10 MS. MANDEL: Oh, the taxpayer's exhibits. Can 11 you just -- it's on the second -- I'll give you a 12 second, but it's on the second page, it's like the last 13 bit. 14 And it's showing that IRS -- showing the tax 15 return filed, as they said, the 9th of June 2008 for an 16 $893 liability, they process -- well, earned income 17 credit -- credit transferred out to 4-15-01, I don't 18 know if that's actually 4-15-01 for the filing date for 19 this year or -- 20 MS. SMITH" That's the date, I believe, that 21 they made that effective, Ms. Mandel. 22 I -- from the ones I've looked at, I believe 23 that if the IRS would have actually transferred a credit 24 to another year -- 25 MS. MANDEL: Right. 26 MS. SMITH: -- they would have told what you 27 year they transferred it to. 28 I think this is a way they make an accounting 10 1 transaction on their system to show -- I don't know if 2 they actually transfer the money into a place where it 3 can't be refunded from or -- because if you look at the 4 next entry -- 5 MS. MANDEL: Yeah. 6 MS. SMITH: -- it's a denial of a claim for 7 refund. 8 And those two together tell me that what they 9 did is they're saying there was a credit, but they're 10 not going to give it to the taxpayer, they've denied the 11 claim for refund. 12 MS. MANDEL: Yeah. 13 MS. SMITH: So, I think that -- because it 14 doesn't say where it went, I think that's how they do 15 that. 16 MS. MANDEL: Okay, thanks. 17 MR. MOTTAHDEH: If I may be of assistance to 18 you on that, I concur with what most of what you said, 19 basically, in that the -- because in this case the IRS 20 did not have a specific year to apply it to, they left 21 it open on the account to be applied to a future year. 22 MS. YEE: Other questions, Members? 23 Okay, hearing none, may I have a motion, 24 please? 25 MR. HORTON: Move to take it under submission. 26 MS. YEE: Okay, motion by Mr. Horton to take 27 the matter under submission. 28 Second by Ms. Alby. 11 1 Without objection, that motion carries. 2 Thank you, gentleman, very much. We will 3 discuss your matter later today and send you written 4 notice of our decision. 5 Thank you, Mr. Laub. 6 MR. LAUB: Thank you. 7 8 ---o0o--- 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12 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 JUNE 16, 2010 I recorded verbatim, in shorthand, to the 10 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 13 ** through ** constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: {Date} 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 13