BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 450 N Street, Room 121 Sacramento, California REPORTER'S TRANSCRIPT SEPTEMBER 15, 2010 FINAL ACTIONS CASES HEARD SEPTEMBER 14, 2010 Reported by: Beverly D. Toms No. CSR 1662 1 1 2 P R E S E N T 3 For the Board Betty Yee of Equalization: Chair 4 Jerome E. Horton 5 Vice-Chair 6 Barbara Alby Acting Member 7 Michelle Steel 8 Member 9 Marcy Jo Mandel Appearing for John 10 Chiang, State Controller (per Government Code 11 Section 7.9) 12 Diane Olson Chief, Board 13 Proceedings Division 14 Board of Equalization 15 Staff: Amy Kelly Tax Counsel 16 Anthony Epolite 17 Tax Counsel 18 Hee Kim Tax Counsel 19 20 ---oOo--- 21 22 23 24 25 26 27 28 2 1 ITEM H2.2 2 Sacramento, California 3 September 15, 2010 4 ---oOO--- 5 MS. YEE: Ms. Olson, let me just try to lay out 6 the schedule, if I could. Members, what I'd like to do 7 is to take up the matters taken under submission 8 yesterday with the exception of Item C7, Community 9 Flavor, LLC. We will put the action on that matter over 10 until this afternoon. 11 So, Ms. Olson, why don't we go back and 12 dispense with those items. 13 MS. OLSON: Okay. Ms. Kelly. 14 Our first item would be H2, sub-item 2, Noel 15 and Meling Yi. 16 MS. YEE: Let -- let's do the nonappearance 17 item. We had one outstanding item in our -- on our 18 nonappearance calendar. It was Item H2, sub-item 2, 19 Noel Yi and Meling Yi. 20 MS. KELLY: Right. 21 MS. YEE: There was a question as to whether 22 the Franchise Tax Board had actually responded to the -- 23 the latest information submitted. 24 MS. MANDEL: Right. And we've got a response 25 now, so -- 26 MS. YEE: Yes. 27 MS. MANDEL: -- I will renew the motion I made 28 yesterday, which was to sustain the Franchise Tax Board. 3 1 MS. YEE: Okay, we have a motion by Ms. Mandel 2 to sustain the Franchise Tax Board in this matter. 3 Is there a second? 4 MS. MANDEL: And for the Members' information, 5 the Franchise Tax Board -- correct me if I'm wrong, they 6 say that that $5,000 that I had the question about was 7 already in the -- what Franchise Tax Board has 8 recommended as the basis. 9 MS. YEE: Right. 10 MS. KELLY: That's correct. 11 MS. MANDEL: Okay. 12 MS. STEEL: Is that just 5,000 or the other 13 two checks, too? As the 700 -- I got like three 14 different checks. 15 MS. KELLY: The only remaining disputed amount 16 was the 28,000. 17 MS. STEEL: Okay. 18 MS. YEE: Okay. I have a motion by Ms. Mandel. 19 Is there a second? 20 MR. HORTON: Second. 21 MS. YEE: Second by Mr. Horton. 22 Further discussion? 23 Without objection? 24 MS. ALBY: I object. 25 MS. YEE: Okay, please call the roll. 26 MS. OLSON: Madam Chair. 27 MS. YEE: Aye. 28 MS. OLSON: Ms. Alby. 4 1 MS. ALBY: No. 2 MS. OLSON: Ms. Steel. 3 MS. STEEL: Aye. 4 MS. OLSON: Mr. Horton. 5 MR. HORTON: Aye. 6 MS. OLSON: Ms. Mandel. 7 MS. MANDEL: Aye. 8 MS. OLSON: Motion carries. 9 MS. YEE: Okay. 10 ---oOo--- 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 1 ITEM B1. 2 MS. OLSON: Our next item is B1, James N. 3 North. 4 MS. MANDEL: What was the name? 5 MS. YEE: James N. Smith, right? 6 MS. OLSON: Smith. I'm sorry. 7 MS. YEE: Okay. All right, Item B1, James N. 8 Smith. 9 May I have a motion, please? 10 MS. ALBY: Oh, hold on. B1? 11 MS. YEE: B1, yes. 12 MS. MANDEL: Sustain the Franchise Tax Board. 13 MS. YEE: Okay. 14 MR. HORTON: Second. 15 MS. YEE: I have a motion by Ms. Mandel to 16 sustain the Franchise Tax Board. Second by Mr. Horton. 17 Discussion? 18 Okay. Hearing none, objection? 19 Franchise Tax Board sustained. Such will be 20 the motion. Thank you. 21 Next item, please. 22 ---oOo--- 23 24 25 26 27 28 6 1 ITEM B3. 2 MS. OLSON: Our next item is B3, Sophia A. 3 Dority. 4 MS. YEE: Okay, Item B3, Sophia A. Dority. May 5 I have a motion, please. 6 MR. HORTON: Motion to sustain Franchise Tax 7 Board. 8 MS. YEE: Motion by Mr. Horton to sustain the 9 Franchise Tax Board. 10 Is there a second? 11 I will second that motion. 12 Discussion? 13 Ms. Steel, please. 14 MS. STEEL: I was asking Franchise Tax Board 15 regarding legal separation here. You know, it was 16 really interesting to hear yesterday that they couldn't 17 go inside of the house and they don't know how they 18 live. And when taxpayer said that, yes, they are, you 19 know, living totally separately means that they are 20 living separately, because, you know, we cannot really 21 go in and find out every morning and night, try to make 22 sure that they are not seeing each other. 23 So I -- I think we really have to go for that, 24 you know, listen to the taxpayer that they are having a 25 legal separation. And especially under the recession 26 and bad, you know, economy season can like this -- years 27 like this that, you know, they live together, a lot of 28 people, that they have legal separation but they live 7 1 under the same roof. 2 So I totally believe for -- you know, for 3 taxpayer for this (inaudible). 4 MS. YEE: Okay. Appeals, is that enough? 5 MS. KELLY: Ms. Yee, may -- may I clarify? 6 MS. YEE: Please. 7 MS. KELLY: The -- under Revenue Procedure 4.03 8 one of the factors is whether or not the parties -- 9 whether or not the spouses were divorced, legally 10 separated or living together. 11 But under that section the factors are all 12 considered -- are all considered but no single factor is 13 determinative. So the Board could find based on the 14 other factors. In this particular case they could find 15 that it would be inequitable to deny relief to the 16 Appellant. 17 So regardless of whether they're living 18 together, the Board could decide that. 19 MS. YEE: Okay. Other discussion? 20 Ms. Alby, please. 21 MS. ALBY: Is there -- is there -- didn't we 22 talk briefly yesterday about a possible offer in 23 compromise consideration for this person? 24 MS. YEE: We did. 25 MS. KELLY: Right. And once the liability is 26 final that's something that she could submit to FTB for 27 consideration. 28 MS. ALBY: Good. Okay. 8 1 MS. YEE: Okay. Other discussion? 2 Okay, a motion by Mr. Horton, second by Yee to 3 sustain the Franchise Tax Board, Please call the roll. 4 MS. OLSON: Madam Chair. 5 MS. YEE: Aye. 6 MS. OLSON: Ms. Alby. 7 MS. ALBY: Aye. 8 MS. OLSON: Ms. Steel. 9 MS. STEEL: No. 10 MS. OLSON: Mr. Horton. 11 MR. HORTON: Aye. 12 MS. OLSON: Ms. Mandel. 13 MS. MANDEL: Aye. 14 MS. OLSON: Motion carries. 15 Our next item is B4 -- 16 MS. STEEL: Just before that -- 17 MS. YEE: Ms. Steel. 18 MS. STEEL: -- so now are we going to refer 19 this taxpayer to the Offer in Compromise -- 20 MS. YEE: The Offer in Compromise, yes. 21 MS. KELLY: Yes, we'll include that in the 22 letter decision. 23 MS. STEEL: Okay. 24 ---oOo--- 25 26 27 28 9 1 ITEM B4. 2 MS. OLSON: Our next item is B4, Teresa 3 Benjamin. 4 MS. YEE: Okay. Item B4, Teresa Benjamin. May 5 I have a motion? 6 MR. HORTON: Move to sustain the Franchise Tax 7 Board. 8 MS. YEE: Motion by Mr. Horton to sustain the 9 Franchise Tax Board. 10 Is there a second? 11 MS. MANDEL: Second. 12 MS. YEE: Second by Ms. Mandel. 13 Discussion? 14 MS. ALBY: Give me a minute, I -- can I just 15 catch up here? 16 MS. YEE: Yes, please. 17 MS. ALBY: I -- I was really persuaded that 18 this could have been a real -- real true error. I was 19 persuaded -- I thought the taxpayer was very 20 sympathetic. Her filing history is very good. And I 21 just -- I wish we would reconsider that because I am -- 22 I really I believe that she did indeed comply and did 23 not realize we didn't receive her tax return. 24 MS. STEEL: Isn't this the one that they -- 25 she -- is the statute -- 26 MS. YEE: Yes. 27 MS. STEEL: -- the problem? 28 MS. YEE: It's the Statute of Limitations. 10 1 MS. KELLY: Right. Right. Statute of 2 Limitations and -- and she submitted tax returns for a 3 number of years, not for the tax year on appeal, to try 4 and demonstrate that she had a pattern of filing the 5 Federal and the State together. 6 MS. YEE: Oh, she had the -- the mail receipts. 7 MS. KELLY: Right. Right. And -- and FTB had 8 evidence that refuted that she had a history of filing 9 the Federal and the State returns together. And I think 10 what a couple of the years demonstrate is that she filed 11 returns together, but it was later. Her initial filings 12 which she had no evidence with respect to her initial 13 filing, she would make an initial filing with F -- with 14 the IRS and then a couple years later she followed up 15 and -- and filed returns together. 16 That's the case in a couple of years. 17 MR. EPOLITE: That was the case for the 2001 18 and 2003 years. 19 MS. KELLY: Uh-huh. 20 MS. STEEL: So, she made -- she did the filing 21 together for all the years except the 2001 and 2003, is 22 that what you are saying? I didn't -- 23 MR. EPOLITE: Based on the IRS transcript that 24 the Franchise Tax Board submitted for 2001 and 2003 it 25 appear that there were returns filed earlier for each of 26 those years than what Appellant alleged. 27 MS. STEEL: Filed the Franchise Tax Board? 28 MR. EPOLITE: The Federal returns. 11 1 MS. STEEL: So she did Franchise Tax Board 2 forst -- first and then filed IRS later, is that what 3 you are saying? 4 MR. EPOLITE: No, the evidence that she 5 provided -- for example, for the 2001 year Appellant 6 provided documentation that the returns, Federal and 7 State, were filed on May 15, 2008, as the first filing 8 of returns for those years. 9 However, according to the IRS transcript for 10 2001 the first return -- Federal return filed was 11 actually in November 2007. And a similar situation for 12 2003. 13 MS. STEEL: Oh, you mean those receipts, 14 that -- the filing receipts that she brought? 15 MR. EPOLITE: The IRS transcripts are 16 consistent with the filing receipts. 17 MS. YEE: Okay. Other questions? 18 Discussion? 19 Okay, I have a motion by Mr. Horton, seconded 20 by Ms. Mandel to sustain the Franchise Tax Board. 21 Please call the roll. 22 MS. OLSON: Madam Chair. 23 MS. YEE: Aye. 24 MS. OLSON: Ms. Alby. 25 MS. ALBY: No. 26 MS. OLSON: Ms. Steel. 27 MS. STEEL: Aye. 28 MS. OLSON: Mr. Horton. 12 1 MR. HORTON: Aye. 2 MS. OLSON: Ms. Mandel. 3 MS. MANDEL: Aye. 4 MS. OLSON: Motion carries. 5 ---oOo--- 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13 1 ITEMC1 2 MS. OLSON: Our next item is C1, Janice Groshak 3 Lami. This was a waived appearance from yesterday. 4 MS. YEE: Oh, okay. Okay, Members, we're on 5 item C1. This is a matter where the Petitioner waived 6 appearance, Janice Groshak Lami. 7 MR. HORTON: Motion to adopt staff -- staff 8 recommendation. 9 MS. YEE: Okay, I have a motion by Mr. Horton 10 to adopt the staff recommendation. 11 MS. MANDEL: Second. 12 MS. YEE: Second by Ms. Mandel. 13 Discussion? 14 MS. STEEL: This is the one that we just took 15 the money out from her account. 16 MS. KIM: Yes. 17 MS. STEEL: But she was the one earning money, 18 right? So this is her account. 19 MS. KIM: Well, the -- the assertion was that 20 the money was earned by her, but there was really no way 21 to trace that. 22 MS. STEEL: But she was the only one working. 23 MS. KIM: Well, Mr. Lami never appeared in this 24 matter and never participated, so we're not sure how 25 much of the funds actually just came from her. 26 MS. YEE: Yeah, it's really unfortunate the 27 Petitioner didn't come forward on this because we may 28 have been able to see if there were any facts to perhaps 14 1 establish innocent spouse relief of some type, but -- 2 MS. KIM: And the checking account from which 3 the funds were drawn were actually held jointly by Mr. 4 and Mrs. Lami. 5 MS. STEEL: Right, she said -- 6 MS. YEE: Uh-huh. 7 MS. STEEL: -- she transferred that money to 8 joint account. 9 MS. KIM: Right. 10 MS. STEEL: Right. Yeah. 11 So she was working at that time and husband was 12 not working. So she put the money to pay from the joint 13 account. That's what I heard for this case. 14 MS. KIM: Right. Her assertion is that her 15 husband was not working and she had earned all those 16 funds, correct. 17 MS. STEEL: Well, I always assume that 18 taxpayer's always telling the truth. So -- okay. 19 MS. YEE: Okay. Other discussion on this 20 matter? 21 Okay. Hearing none, may I have a motion, 22 please. 23 Oh, I'm sorry, there is a motion, yes? 24 MS. STEEL: Yeah. 25 MS. YEE: Excuse me. 26 Okay, let me -- Ms. Olson, I'm sorry, I'm 27 having a lapse. Will you remind me of the motion? 28 MS. OLSON: That's okay. Mr. Horton motioned 15 1 and Ms. Mandel seconded it, and it's staff 2 recommendation. 3 MS. YEE: Thank you. Okay, motion and a second 4 to adopt the staff recommendation. Please call the 5 roll. 6 MS. OLSON: Madam Chair 7 MS. YEE: Aye. 8 MS. OLSON: Ms. Alby. 9 MS. ALBY: Aye. 10 MS. OLSON: Ms. Steel. 11 MS. STEEL: No. 12 MS. OLSON: Mr. Horton. 13 MR. HORTON: Aye. 14 MS. OLSON: Ms. Mandel. 15 MS. MANDEL: Aye. 16 MS. OLSON: Motion carries. 17 ---oOo--- 18 19 20 21 22 23 24 25 26 27 28 16 1 ITEMC2 2 MS. OLSON: Our next item is C2, Auto Store of 3 Merced, Inc. and Sana Sadeddin. 4 MS. YEE: Okay. We're on item C2a, the Auto 5 Store of Merced, Incorporated and C2b, Sana Sadeddin. 6 Is there a motion? 7 MS. ALBY: Sustain the Franchise Tax Board. 8 MS. MANDEL: It's a BOE case. 9 MS. YEE: BOE case. 10 MS. ALBY: Oh, I'm sorry. That will work. 11 BOE. 12 MS. YEE: Motion by Ms. Alby to adopt the staff 13 recommendation. 14 Is there a second? 15 I will second that motion. 16 Discussion? 17 MR. HORTON: C1? 18 MS. STEEL: May I have an alternate motion 19 for -- 20 MS. YEE: Uh-huh. We're on C2 a and b. 21 MR. HORTON: Okay. 22 MS. YEE: Okay, the Auto Store. 23 Ms. Steel. 24 MS. STEEL: Yesterday we were listening and 25 then, you know, I've been talking about the 40 -- the 26 first audit was 47 percent difference and then it went 27 down to 11 percent, so is it any way possible we can 28 move penalty up for a second audit? It's 2900. 17 1 MS. YEE: Oh, gosh, there was just so much 2 lacking in the second audit that I don't have any 3 confidence about that. 4 MS. STEEL: But they're moving towards the 5 right direction. 6 MS. YEE: Okay. Do you want to -- do you have 7 a substitute motion? 8 MS. STEEL: Yeah, that's my motion. 9 MS. YEE: Is to -- 10 MS. STEEL: Sustain. 11 MS. YEE: I'm sorry, Ms. Steel, restate your 12 motion. 13 MS. STEEL: Sustain the staff recommendations 14 but remove second audit penalty for $2,948. 15 MS. YEE: Oh, okay. I see. 16 MS. STEEL: That's what I'm -- yeah. 17 MS. YEE: Okay. Okay, we have a motion by -- a 18 substitute motion by Ms. Steel to adopt the staff 19 recommendation but to -- relieve the penalty. 20 MS. STEEL: For only for second audit. 21 MS. YEE: For this -- for the second audit, 22 right, correct. 23 Is there a second? 24 MS. ALBY: Wait. I'll second. 25 MS. YEE: Okay. Further discussion. 26 MS. MANDEL: Objection. 27 MS. YEE: Okay. 28 MR. HORTON: Yeah. 18 1 MS. YEE: Okay. 2 MR. HORTON: Yes, Members. 3 MS. YEE: Mr. Horton. 4 MR. HORTON: I mean, I concur with Member 5 Steel's position that the taxpayer's making efforts to 6 improve their recordkeeping. I'm somewhat cautioned by 7 the fact that the U. S. Attorney is looking into the 8 case, in the duplication of transactions and some of the 9 other items that resulted in the liability. In fact, I 10 was actually considering -- I thought that the -- that 11 my colleagues would go for a 30-30-30 to allow the 12 taxpayer time, even though I wouldn't necessarily go 13 there myself, because I think a further review of the 14 information provided by the financial institution might 15 yield even a higher liability. 16 And so it is the -- the act that sort of takes 17 place that causes the liability that I'm more concerned 18 about than the measure of the liability. And the act is 19 one that sort of teeter-totters on -- to cause one to 20 pause and think about fraud. And so whenever I get to a 21 point that I'm starting to pause and -- and anticipate 22 that there may be some fraudulent activity going on, the 23 penalty becomes warranted at least, and so that's my -- 24 that's my concern with removing the penalty. 25 In a normal environment where the taxpayer is 26 showing some effort to correct their books and records. 27 However, as a result of the personnel matters, pers -- 28 individuals who may have failed to get a resale card or 19 1 failed to document a transaction -- this is a used car 2 dealer -- with jackets, with vin numbers, interacting 3 with the DMV, I mean a lot of activity has to take place 4 in order for them not to report the proper amount. 5 Now, the taxpayer indicated that they -- 6 they -- they wanted some time to -- to substantiate what 7 the Board viewed as a financial transaction and then, in 8 themselves, thought it was a bad debt. 9 I concur with the Board. I think it was a 10 financial transaction, not a bad debt, and that will 11 probably, if further investigation in that area, might 12 of itself result in a larger liability. 13 So to some extent I'm certainly speculating, 14 and I don't want to speculate, and I have a tendency to 15 try to speculate in favor of the taxpayer, but I can't 16 find the grounds on which to stand in favor of the 17 taxpayer in this particular case, which makes it 18 difficult to -- for me to -- to waive the penalty. 19 MS. STEEL: Actually, there's a lot of -- I can 20 withdraw my motion, and then I can give me 30-30-30, 21 but U. S. Attorney is holding all the jackets and 22 there's almost impossible to get within one-month period 23 from U. S. Attorney's office because they try to 24 retrieve those documents for the last two years and it 25 didn't work. 26 Another -- that has to be -- have a lot of 27 documents that -- as what taxpayer said, that there's a 28 lot of duplicate that, you know, we counted as a sales. 20 1 Second thing is when they sold the finance -- 2 finance to County they always have 10 to 15 percent 3 discount. I didn't get really straight answer from the 4 Department that they really counted and adjusted that. 5 That's another factor. 6 So, if the Board can go with this I'd rather 7 make 30-30-30 and then give them -- instead of 30 days, 8 the first 90 days. If they don't -- they cannot 9 retrieve anything from U. S. Attorney because we just 10 give them the date, and then if it doesn't work then we 11 going to just sustain the staff recommendations. I can 12 just go that way. 13 MS. YEE: Okay. 14 MS. STEEL: Because it's not really fair for 15 the taxpayers because yesterday what we heard is they 16 have -- you know, they going to try to retrieve more 17 documents from the U. S. Attorney's office. 18 MR. HORTON: Madam Chair. 19 MS. YEE: Yes, Mr. Horton. 20 MR. HORTON: Members, if we did decide to do a 21 30-30-30 I would have to ask the staff to take a look at 22 the financial records from the financial institutions. 23 In doing so, if an item -- if a transaction was 24 unwind -- or unwound, excuse me, or backed out, the 25 first thing that happens is the finance folks are 26 notified. 27 And so it's rather -- I don't want to say 28 simple, but it's certainly one source of information. 21 1 And based on the testimonies that was provided by the 2 taxpayers and the taxpayers' representative, and this is 3 just instinct, I -- when the -- the option was brought 4 up to examine the -- the information available at the 5 financial institutions on the items that have been 6 financed, there was a hesitation. 7 I don't know what that means, but I would -- if 8 we do 30-30-30 I would ask that the Board direct staff 9 to take a look at the financial records held by the 10 financial institutions and do a reconciliation item by 11 item, giving consideration to the fact that some 12 transactions are cash transactions, and in doing so make 13 the appropriate adjustments for any unwinds if they 14 exist, any transactions that have been backed out, and 15 if in fact those financial arrangements which I believe 16 are just simply financial arrangements based on the 17 facts, adjust for that, but at the same time if there 18 are any additional transactions that have not been 19 accounted for in the records but come up through this 20 third party confirmation process, that that be adjusted, 21 as well. 22 Or we could simply sustain the -- adopt the 23 recommendation of the staff and -- and move forward. 24 But I'll leave that up to the body. 25 MS. STEEL: Madam Chair? 26 MS. YEE: Yes, Ms. Steel. 27 MS. STEEL: Another thing is, if staff can -- 28 is that possible, to contact U. S. Attorney's office and 22 1 then, you know, maybe it might going to expedite. 2 MS. YEE: Facilitate the -- 3 MS. STEEL: Yeah. Yeah. 4 MS. YEE: -- return of the records. 5 MS. STEEL: Return the jackets. 6 MS. YEE: Okay. 7 MS. STEEL: The faster than -- 8 MR. HORTON: What the -- 9 MS. KIM: We can certainly ask. 10 MR. HORTON: Madam Chair, if I may. 11 MS. YEE: Yes, Mr. Horton. 12 MR. HORTON: What the U. S. Attorney has done 13 in the the past is they've allowed us to come in and 14 take a look at them without releasing them to us. So, 15 now in the past for me is like 30 years ago. So -- so I 16 don't know what they do now. 17 MS. YEE: Okay. 18 MS. STEEL: So I will -- 19 MS. YEE: So, Ms. Steel, do you have a 20 substitute motion -- 21 MS. STEEL: And -- yes. 22 MS. YEE: -- to your substitute? 23 MS. STEEL: Yes. 24 MS. YEE: Or you're withdrawing your motion? 25 MS. STEEL: Withdrawing the motion and my 26 motion as 30-30-30. 27 MS. YEE: Okay. 28 MS. STEEL: With all the -- 23 1 MS. YEE: With the caveats of Mr. Horton? 2 MS. STEEL: -- with the request that Mr. Horton 3 and I made. 4 MS. YEE: Okay. 5 MS. STEEL: That staff to follow up. 6 MS. YEE: All right. 7 MR. HORTON: Second. 8 MS. YEE: Motion by Steel, second by Mr. 9 Horton. I'm going to be a "no" vote on this. Any other 10 objection? 11 Okay. Hearing none, such will be the order. 12 MS. KIM: Can I just get clarification? You 13 had mentioned 90-30 instead of -- 14 MS. YEE: I think it's 90-30-30. 15 MS. MANDEL: Oh. 16 MS. STEEL: 90-30-30, yes. 17 MS. MANDEL: Then I'm gonna -- I'm gonna -- 18 MR. HORTON: I'm sorry, what's 90-30-30? 19 MS. STEEL: Or -- okay, what you guys going to 20 go for here? I make 30-30-30 then -- 21 MS. YEE: I -- I think the -- 22 MS. STEEL: I want to give a little fair, you 23 know, hearing for the taxpayers. Yesterday the 24 representative for the taxpayer made it very clear that 25 when they bring those jackets back they were sure that 26 a lot of cases that they resold or, you know, 27 repossessed. So I think our job is we have to be fair 28 to the taxpayers so we giving just a little more time to 24 1 prepare more paperworks and we can help to go to U. S. 2 Attorney and try to expedite all these papers. 3 So if you want me to make it 30-30-30 then I do 4 that. 5 MS. MANDEL: Yeah, I mean -- 6 MR. HORTON: Madam Chair -- 7 MS. YEE: Hang on. Let me have Ms. Mandel, and 8 then Mr. Horton. 9 MS. MANDEL: I mean yesterday they did not 10 think -- the jackets, as I understand it, the story was 11 that the -- that these jackets were available at the 12 time of the audit. 13 MS. YEE: That's correct. 14 MS. MANDEL: That during the course of the 15 appeal they tried to make some effort or -- 16 MR. HORTON: They did. 17 MS. MANDEL: -- to -- to get information from 18 the U. S. Attorney's office, which is where they say 19 that the jackets are. And without success. They don't 20 think they'll have success if they ask again. 21 And I'm just a little wary of giving so much 22 time automatically on the front end for us to hear 23 nothing back for 90 days because it would seem that a 24 request, particularly if -- if Mr. Horton's suggestion 25 is taken up that staff make a contact to see, that you 26 would know pretty quickly whether they're going to let 27 somebody -- whether they have the material and whether 28 they're going to let somebody come in and look at the 25 1 material. 2 So, I -- I mean, I'm generally in -- in favor 3 of allowing taxpayers the time to produce information 4 that they're pretty sure they can look for and find 5 because, of course, we want to get to the best, most 6 complete, most correct answer. 7 But I -- I'm very wary of -- in this instance 8 of having so much time on the -- on the front end with 9 no sort of -- it's just a long period of time. You're 10 then talking that the case wouldn't even possibly come 11 back to the Board for months on end when maybe, you 12 know, you can find out next week that there's nothing 13 there or that you can't get it for some reason. 14 MS. YEE: Okay. 15 MS. STEEL: I make motion, 30-30-30 and if they 16 cannot provide any more documents then we're going to 17 sustain the staff recommendation. 18 MS. YEE: Okay. 19 MS. ALBY: 90-30-30? 20 MS. STEEL: It's a 30-30-30. 21 MS. YEE: Yeah. Okay. Motion by Ms. Steel to 22 move a 30-30-30 on this and should there be nothing 23 forthcoming from the U. S. Attorney's office that the 24 staff recommendation is otherwise sustained. 25 Is there a second? 26 MS. ALBY: Second. 27 MS. YEE: Second by MS. Alby. 28 MR. HORTON: So condition subsequent is -- is 26 1 yes and no on receiving the information from the U. S. 2 Attorney and then -- 3 MS. STEEL: And then we're going to try to 4 contact and then plus try to find out that County 5 finance that they've been selling. 6 MS. KIM: Okay, so you -- 7 MS. STEEL: Yeah. 8 MS. KIM: -- you do want the Department -- 9 MS. STEEL: Yeah. 10 MS. KIM: -- to contact the finance 11 companies -- 12 MS. STEEL: Department to contact U. S. -- 13 yeah. 14 MS. KIM: And if there are no further documents 15 from the U. S. Attorneys or the finance companies 16 then -- 17 MS. STEEL: Then it's going to be, yes, sustain 18 the staff recommendation. 19 MS. YEE: Can I make a suggestion? 20 MR. HORTON: I don't -- 21 MS. YEE: I'm -- I'm uncom -- I'm uncomfortable 22 with that. Why don't we allow the additional time -- 23 MS. STEEL: Uh-huh. 24 MS. YEE: -- and then have the matter come 25 back. I -- should there be anything, I'd like to take a 26 second look. I'll -- I'll support the 30-30-30 motion 27 reluctantly, but I do want to see what gets produced. 28 I -- I'm not optimistic. 27 1 MR. HORTON: Yeah, I don't think he's going to. 2 MS. YEE: And interest is accruing at a pretty 3 good clip in this case. So, okay, we have a 30-30-30. 4 We will see what is forthcoming in terms of information 5 from both of those sources, and it will come back on a 6 nonappearance calendar -- 7 MR. HORTON: Madam Chair, if -- 8 MS. YEE: -- before the Board. 9 Mr. Horton. 10 MR. HORTON: Members, if I may recommend 11 possibly a discussion with the taxpayer that -- one, 12 thanks for your insight, Madam Chairs, that we disclose 13 the interest and how they can actually address the 14 accruing of the interest, at the same time that -- that 15 we talk about the -- the audit plan going forward with 16 the taxpayer and have some sort of deliberative 17 conversations about that, and some conclusions, allow 18 the taxpayer the option of saying now that -- I mean 19 allowing the taxpayer the option of further 20 understanding the law as it relates to -- as it relates 21 to bad debts and financing, because that's more of a 22 legal discussion. 23 Understand the process that we went through 24 because staff did make a very deliberative analysis of 25 the duplication of transactions as well as the unwinds 26 and so forth. They had the jackets available. They 27 reviewed them. They tested them. There's this $700,000 28 schedule that reflects all of these numbers. And staff 28 1 actually had a chance to review those documents and then 2 the documents went to the U. S. Attorneys. 3 So reviewing those documents again, I don't 4 know what's going -- what is -- what the benefit's going 5 to be, but I certainly want to provide them that 6 opportunity if they think there's a benefit there. 7 The -- the examination of the financial 8 transactions as recorded by the financing institutions 9 is a new level of audit observation, let's use those 10 terms, that may cause some pause and I think that the 11 taxpayer should have the opportunity to sort of discuss 12 that. 13 And so the only caveat, Members, is, is that 14 discussion takes place, that this not necessarily be a 15 mandate, that it be some subjective judgment on the part 16 of the taxpayer as to whether or not they want to go 17 forward or not with the further examination, possibly 18 because they now have a better understanding of the law 19 and their exposure. 20 MS. YEE: Okay. 21 MR. HORTON: What I said is something I could 22 probably have said with five words, but -- 23 MS. YEE: That's okay. 24 MR. HORTON: -- I just couldn't say it 25 publicly. 26 MS. YEE: Let me just check in with Ms. Kim. 27 Are -- are you -- do you have everything you need -- 28 MS. KIM: Yes. 29 1 MS. YEE: -- in terms of direction? 2 Okay. Motion by Ms. Steel to allow a 30-30-30 3 in this matter. Second by Mr. Horton, I believe. 4 MR. HORTON: Yes. 5 MS. YEE: Okay. Without objection, motion 6 carries. Thank you. 7 MS. OLSON: Ms. Yee -- 8 MS. YEE: Yes. 9 MS. OLSON: -- I've written that Ms. Alby 10 seconded the motion. 11 MS. YEE. You're probably right. Another lapse 12 on my part. 13 MS. OLSON: That's okay. 14 MS. YEE: I beg your pardon. Thank you. 15 Okay. Next item. 16 MS. OLSON: Our next item is C3, Faramarz R. 17 Razari -- 18 MS. YEE: Actually, let me take that back. Ms. 19 Alby seconded the first substitute motion. Mr. Horton 20 seconded the second substitute motion. 21 MS. OLSON: Oh, okay. Thank you. 22 MS. YEE: I did track better. 23 MS. MANDEL: I don't have enough room on my 24 little -- 25 MS. ALBY: Okay. 26 MS. YEE: I'm sorry, next item, please. 27 ---oOo--- 28 30 1 ITEM C3. 2 MS. OLSON: Our next item is C3, Faramarz S. 3 Razi and Sidig Hamidi. 4 MS. YEE: Okay. Members, we have item C3 5 before us, Faramarz S. Razi and Sidig Hamidi. 6 Is there a motion? 7 MR. HORTON: Move to adopt staff 8 recommendations. 9 MS. YEE: Okay. Motion by Mr. Horton to adopt 10 the staff recommendation. Seconded by Ms. Alby. 11 Discussion? 12 MS. STEEL: This one that Department did 13 December 2007 test. I don't think that that's really 14 represent entire 30 months period -- audit period. And 15 error rate was .66 percent. It's less than one percent. 16 And then we heard the story from the taxpayer that they 17 changed to the new cash register they had, and he wrote 18 it down every day because they were not used to that 19 machine. 20 So that's the difference came less than one 21 percent there. 22 So I think that's too severe to ask them to pay 23 because I believe that this taxpayer told us the truth 24 and second thing is that out of 39 months the Department 25 did only one -- especially December 2009 test, and I 26 don't think that really represent whole 39 months of 27 audit period. So I object. 28 MS. YEE: Okay. Other discussion, Members? 31 1 Okay, we have a motion and a second on this 2 item. Please call the roll. 3 MS. OLSON: Madam Chair. 4 MS. YEE: Aye. 5 MS. OLSON: Ms. Alby. 6 MS. ALBY: Aye. 7 MS. OLSON: Ms. Steel. 8 MS. STEEL: No. 9 MS. OLSON: Mr. Horton. 10 MR. HORTON: Aye. 11 MS. OLSON: Ms. Mandel. 12 MS. MANDEL: Aye. 13 MS. OLSON: Motion carries. 14 MS. YEE: Okay. 15 ---oOo--- 16 17 18 19 20 21 22 23 24 25 26 27 28 32 1 ITEM C5. 2 MS. OLSON: Our next item is C6, Mary Buntz 3 Steel. 4 MS. YEE: Okay. Item C6, Mary Buntz Steel. 5 May I have a motion, please? 6 MS. ALBY: Move the taxpayer's petition. 7 MS. YEE: I'm sorry? 8 MS. ALBY: I -- I move in favor of the 9 taxpayer. 10 MS. YEE: Okay. Motion by Ms. Alby to grant 11 the petition. Is there a second? 12 MS. STEEL: Second. 13 MS. YEE: Second by Ms. Steel. 14 Discussion? 15 MS. ALBY: Actually am. I kind of wanted to go 16 through her -- after she submitted the documents 17 yesterday, which were late, I -- I agree. 18 MS. YEE: Uh-huh. 19 MS. ALBY: I sum it up this way. She moved to 20 Oregon in January '06 to look for a job. She lived with 21 a friend in Klamath Falls. However, she kept her house 22 in Castro Valley. 23 She bought the airplane from a fellow in Kansas 24 in February '06 and had it flown to Oregon where she 25 took delivery. 26 Taxpayer had a hangar in Livermore for a 27 different plane. She sold that plane in April of '06 28 and rented her empty hangar space to -- in Livermore to 33 1 a friend. 2 At -- then she discussed buying floats from her 3 friend, Fred Reever -- Weaver, in the Spring of '06. 4 They agreed that she'd buy them and bring the plane down 5 to his place in Amador for installations in July of '06. 6 She brought the plane down in '06, but it 7 crashed on the way. 8 So I -- I felt her explanation and her document 9 she support -- she submitted yesterday were very, very 10 compelling and I think she was compelling, and I would 11 hope that we can decide in her favor. 12 MS. YEE: Okay. Thank you, Ms. Alby. Other 13 discussion? 14 MS. MANDEL: I think she also had brought it in 15 earlier, in June, which she had originally forgotten and 16 then remembered when staff had some information. 17 MS. ALBY: She did. But that -- she was -- 18 she's allowed to if she is an Oregon resident, is my 19 understanding. That that doesn't complicate things -- 20 it doesn't change things for her. 21 MR. HORTON: Madam Chair. 22 MS. YEE: Mr. Horton. 23 MR. HORTON: I mean therein is the challenge is 24 her residency. We sort of have to get past that first. 25 And I mean as the evidence as I recall that she was a 26 California residence then, she's a California residence 27 now. 28 She visited Oregon for eight months or so. 34 1 Didn't pay any rent. Didn't own the property. 2 So I mean all the facts is she's a California 3 residence. If we can't get past the residency, it 4 becomes a little difficult even to get into the other 5 factors, which they of themselves presents a challenge 6 relative to the period of time and first functional use 7 within the period of time under consideration. So -- 8 MS. YEE: Yeah, I am -- 9 MR. HORTON: It sort of brought it to -- I 10 mean, I kind of agree that she was attempting to -- she 11 was sharing her -- her perspective of the truth and -- 12 and that was pretty obvious that she was being somewhat 13 truthful from her perspective. But her perspective 14 relative to the law makes the transaction taxable. 15 So, that's the challenge I have with this. 16 MS. ALBY: May I -- 17 MS. YEE: Ms. Alby, please. 18 MS. ALBY: -- respond to that? 19 MS. YEE: Yes. 20 MS. ALBY: In the -- in this -- in the economic 21 environment that we live in people just don't do things 22 the way they have in the past, in my -- the way I -- I 23 look at this particular taxpayer. The dot-com industry 24 went bust. She was -- she had been trying very hard to 25 find employment. 26 I do believe she lived in Oregon. She was 27 working there. It was temporary. So, I -- I think to 28 expect her -- some of these people in the midst of the 35 1 climate we're in I believe their stories. Especially 2 when you have the rest of the story that she presented 3 yesterday. 4 I -- I continue to say that I -- I believe she 5 was an Oregon resident for that short time. And she 6 said she would have never gone to Oregon had that bus 7 not happened. She would -- she would have liked to have 8 stayed in California. But I found her testimony to be 9 credible, that she was indeed a resident in Oregon, 10 working. That she couldn't get in this -- in the 11 Silicon Valley. 12 MS. YEE: Uh-huh. 13 MS. MANDEL: I don't think she found -- I'm not 14 sure she found work in Oregon. That's why she came 15 back. 16 MS. YEE: She came back, right. 17 Well, I -- as credible as the testimony may 18 have been I think the evidence is still lacking, 19 particularly with respect to the flight logs. And then 20 just some of the -- events described relative to the -- 21 I think the installation of the float just seemed a 22 little inconceivable to me, as to why all of that 23 couldn't have occurred outside of California or could 24 have -- yeah, occurred outside of California. 25 But I -- I think bottom line is that I found 26 the documentation to be still fairly lacking. 27 Okay. Other comments, Members? 28 Hearing none, please call the roll. 36 1 MS. OLSON: Madam Chair. 2 MS. YEE: I'm sorry, let me restate the motion. 3 We have a motion by Ms. Alby, second by Ms. Steel to 4 grant the petition. 5 Call the roll, please. 6 MS. OLSON: Madam Chair. 7 MS. YEE: No. 8 MS. OLSON: Ms. Alby. 9 MS. ALBY: Aye. 10 MS. OLSON: Ms. Steel. 11 MS. STEEL: Aye. 12 MS. OLSON: Mr. Horton. 13 MR. HORTON: No. 14 MS. OLSON: Ms. Mandel. 15 MS. MANDEL: No. 16 MS. OLSON: Motion fails. 17 MS. YEE: Okay. May I have another motion, 18 please. 19 MR. HORTON: Move to -- oh, where are we? I'm 20 going ahead, guys. 21 MS. YEE: I'll move to adopt the staff 22 recommendation. 23 MR. HORTON: Staff, yeah. 24 MS. YEE: Second by Mr. Horton? 25 MR. HORTON: Second. 26 MS. YEE: Okay. Please call the roll. 27 MS. OLSON: Madam Chair. 28 MS. YEE: Aye. 37 1 MS. OLSON: Ms. Alby. 2 MS. ALBY: No. 3 MS. OLSON: Ms. Steel. 4 MS. STEEL: No. 5 MS. OLSON: Mr. Horton. 6 MR. HORTON: Aye. 7 MS. OLSON: Ms. Mandel. 8 MS. MANDEL: Aye. 9 MS. OLSON: Motion carries. 10 MS. YEE: Okay. And, Members, we will take up 11 the action on C7, Community Flavor, LLC this afternoon, 12 after further review. 13 ---oOo--- 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 38 1 REPORTER'SCERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, BEVERLY D. TOMS, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 September 15, 2010 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 38 13 pages constitute a complete and accurate transcription 14 of the shorthand writing. 15 16 Dated: September 28, 2010. 17 18 19 20 ____________________________ 21 BEVERLY D. TOMS 22 Hearing Reporter 23 24 25 26 27 28 39