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 OCTOBER 19, 2010 10 CORPORATE FRANCHISE AND PERSONAL INCOME TAX HEARING 11 APPEAL OF 12 CHARLES E. GRAYS, II 13 (ITEM B2) 14 AGAINST PROPOSED ASSESSMENT OF 15 ADDITIONAL INCOME TAX 16 17 18 19 20 21 22 23 24 25 Reported by: Kathleen Skidgel 26 CSR No. 9039 27 28 1 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 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 For Board of Amy Kelly 14 Equalization Staff: Staff Counsel 15 Supervising Tax Counsel 16 For Franchise Tax Board: Suzanne Small 17 Craig Scott 18 19 20 ---oOo--- 21 22 23 24 25 26 27 28 2 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 OCTOBER 19, 2010 4 ---oOo--- 5 MS. YEE: Ms. Mandel, do you have an announcement? 6 MS. MANDEL: Sure. Members, I'd like to introduce 7 you to one of the interns from the Controller's Los Angeles 8 office who's interested in tax. He decided to come see our 9 hearings today. Vincent Cicconi, in the back. Hi, 10 Vincent. 11 MS. YEE: Welcome. 12 MR. HORTON: Welcome. 13 MS. YEE: Thank you. 14 MS. MANDEL: Thanks for coming. 15 Thank you, Madam Chair. 16 MS. YEE: Thank you, Ms. Mandel. 17 Ms. Olson, our next matter, please. 18 MS. OLSON: Our next item is B2, Charles E. Grays, 19 II. Please come forward. 20 MR. HORTON: Madam Chair, as he comes up, with your 21 permission, I would like to ask a question of the intern. 22 MS. YEE: Yes. 23 MR. HORTON: Just kidding. What do you think of 24 that last case? Yeah. 25 MS. YEE: Okay. Members, we are on item B2, 26 Charles E. Grays, II. Appeals, please introduce the 27 matter. 28 MS. KELLY: Good morning, Madam Chair, Members of 3 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 the Board. In this appeal, appellant, for tax years 1995 2 through 2002, filed his returns late, approximately seven 3 to 12 years late for each return. In the meantime, 4 Franchise Tax Board issued demands, issued notices of 5 proposed assessment, which went final and proceeded to 6 collections. 7 When appellant filed his returns, FTB abated and 8 reduced penalties and fees, resulting in overpayments. 9 Where those overpayments were made within one year of the 10 return, those amounts were allowed. And so the issue here 11 today is whether or not, for the remaining disallowed claim 12 for refund amounts, whether those were -- the claim for 13 refunds were timely made within the four-year or one-year 14 statute of limitation. 15 MS. YEE: Very well. Thank you, Ms. Kelly. 16 Good morning. 17 MR. GRAYS: Good morning. 18 MS. YEE: If you'll introduce yourself for the 19 record, sir. You'll have ten minutes for your 20 presentation. 21 MR. GRAYS: Thank you. Excuse me. My name is 22 Charles E. Grays, II. And I'm a little bit overwhelmed 23 because I'm not an attorney, so this is kind of new to 24 me. 25 MS. YEE: That's okay. Just take your time. 26 MR. GRAYS: Okay. Essentially what is stated, I 27 guess, is correct. I did file my returns very late. There 28 were circumstances, extenuating circumstances that came 4 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 into play in my life that prohibited and impeded my ability 2 to do so in a timely manner. 3 Once working for the Franchise Tax Board, I 4 understood somewhat -- I know things have changed 5 significantly since then -- but I did take it upon myself 6 to go down and on numerous occasions I stayed in touch with 7 the Board with regards to circumstances and what was taking 8 place. 9 I will try, and my intent is to make this 10 presentation as, I guess, as efficient as possible, and as 11 quickly as possible. I don't have a lot of iterations and 12 points and authorities and law, and that sort of stuff. So 13 I'm just going to relate to you as best as I can predicated 14 upon what has taken place with me. 15 The information is the same for all years, from 19 16 five -- 1995 through 2002. I'd like the Board to take into 17 consideration, and bear in mind that, first of all, we're 18 dealing with two blocks of time here. The time period 19 that's set for calendars 1995 through 2002, which that's 20 when legally the statute of limitation runs, to September 21 29th, 2002. But actually what took place, I was being 22 garnished. The appellant was being garnished from 1993 to 23 2002 and also 2002 to 2008. 24 What took place was, yes, at one point in time I 25 did finally get things together and I filed all of my 26 returns, got them all in. Monies and/or funds that were 27 applied to those tax years that were due and owing, were 28 paid in part from that first block, again, 1995 up to and 5 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 through 2002. But two-thirds of that money came from 2003 2 to 2008. In other words, an old debt was paid with future 3 monies. 4 The respondent basically is stipulating that a 5 statute of limitations was in place and applicable for 6 those years, those tax years, and quite possibly that is 7 the case for '95 through 2002. However, the statute of 8 limitations, as I could see it, cannot apply to funds 9 earned prior to the statute of limitations actually 10 running; meaning the statute of limitations ran for those 11 years, from '95 to you 2002. The monies earned that paid 12 the majority of those tax liabilities, penalties and 13 interest were earned from 2003 to 2008. 14 I have most of this bullet-pointed, so I'm just 15 going to go and read down the line and you can pick and 16 choose what you wish to address and I'll try and answer it 17 as best as I possibly can when the time comes or as 18 appropriate. 19 There occurred extraneous variables beyond my 20 control which I've outlined in the iterations and also in 21 the documents that I've provided. I provided two rather 22 hefty documents for you. One is a lead which will pretty 23 much address the issue on the page-by-page or year-by-year 24 basis as submitted by the -- contained in the hearing 25 summaries. It will allude to an exhibit number which we'll 26 find in the larger book. 27 1995, as all the other years, I feel were tolled 28 and as well as the statute of limitations. The rationale 6 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 for this is basically the MPAs that were sent were 2 ineffective. They were ineffective because the address 3 that the Franchise Tax Board, the respondent, had with 4 regards to me, 1043 Magnolia, was my mother's address. I 5 moved in and lived with her for, at best, only 11 months. 6 Shortly during that time I met someone and moved out and 7 decided to get my own place and left my mother and her 8 place at 1043 Magnolia. 9 This young lady and I later got married, and I was 10 then at that point in time living at 121 East Alhambra Road 11 in the City of Alhambra, stayed there two years, then 12 bought a home. And then moved from there to unincorporated 13 area of LA County called Valinda. That was my correct 14 address. 15 The problem, I think, stems from the fact that 16 originally my last -- maybe one of my returns may have come 17 to the Franchise Tax Board with the 1043 Magnolia address 18 on it. Then, again, it could have been picked up from 19 personnel. 20 I worked for the State of California, Department of 21 Transportation. As a result, communications with the 22 Franchise Tax Board and myself is not strained. Our HR 23 Department is in Sacramento. Many a times I've received 24 communications from the Franchise Tax Board directly 25 through my HR Department, which would then forward 26 information down to HR and my site or locale where I'm 27 employed. 28 Needless to say, from 1995 through 2002, with the 7 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 exception of 1997, the Franchise Tax Board has been sending 2 letters, I would assume, to the 1043 address based on what 3 I've read and contained within the hearing summary, with 4 the exception for 1997. 1997 contains an address I don't 5 know anything about, was never there, don't even know where 6 it is. 7 The 1043 may have occurred for a number of 8 different reasons. However, that was not my address. 9 Prior to that, I had filed returns which reflected my new 10 address or my other addresses. One return reflected 121 11 East Alhambra Road in the City of Alhambra, the other 12 reflected the 645 Frandale Avenue address, located in the 13 City of Valinda, unincorporated area of Valinda. 14 My primary contention is, is that the SOL could not 15 have run effectively essentially because the MPAs were not 16 delivered in a timely manner. This is cited basically in 17 the points and authorities and can be addressed with 18 regards to the last known address issue which was ruled 19 upon by the Ninth Circuit Court in 1988. I think the case 20 is -- oh, yeah, the case is King -- King versus 21 Commissioner, 1988, and subsequently the appeal of W.L. 22 Bryant, ruled in 1983. 23 Um, essentially it says and stipulates: "An 24 assessment is timely if it is mailed to the taxpayer's last 25 known address before the applicable time limit. As a 26 general rule, a taxpayer's last known address is the 27 address that appears on the taxpayer's most recently filed 28 return, unless FTB is given clear and concise notice of a 8 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 different address." 2 During this particular point in time I've worked in 3 the same place, with the State of California, for 30 years. 4 During that time frame, I had been with the State of 5 California 17 to 20 years. My addresses, as they would 6 change, I notified our HR, our site HR individual. And I 7 think where the breakdown may be is the person at our site 8 may not have apprised the person in HR in Sacramento. 9 Needless to say, on other occasions, as I 10 stipulated earlier, I've received communications from the 11 Franchise Tax Board in the past and responded in kind. So 12 I don't think, um, the argument that the 1043 Magnolia 13 address was the only viable and verifiable address that 14 they had in which to work with. 15 We share similar communications, protocols and 16 proclivities between states, between the state agencies, 17 Lotus Notes, e-mail addresses, telephone numbers, so forth 18 and so on. 19 The issues are pretty much the same from 1996 20 through 2002, again, like I said, with the exception of 21 1997. As I see it, no MPA was ever delivered to me at all. 22 So if it's not delivered then that means, number one, it's 23 invalid, number two, the statute of limitations has run and 24 since has expired. So I find it difficult to address the 25 issue that -- with regards to where we're at and the 26 contentions of the Franchise Tax Board could be valid based 27 upon -- strictly based upon the notice of proposed 28 assessment, as well as supported by the Ninth Court 9 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 District ruling, court ruling. 2 Additionally, what's cited is the fact that the 3 respondent says that they're barred from returning any of 4 the monies that were collected by virtue of the fact 5 that -- excuse me, I'm having a moment here. 6 MS. OLSON: Time has expired. 7 MR. GRAYS: Oh, okay. 8 MS. YEE: Mr. Grays, let us give you time on 9 rebuttal. 10 MR. GRAYS: Sure. Go ahead. 11 MS. YEE: We'll hear from the Franchise Tax Board 12 and you'll have additional time. 13 MR. GRAYS: Thank you. 14 MS. YEE: Franchise Tax Board, please. 15 MS. SMALL: Good morning, Chairman Yee, Board 16 Members. My name is Suzanne Small. I'm representing the 17 Franchise Tax Board, and to my right is Craig Scott, also 18 representing the Franchise Tax Board. 19 I'd just like to begin with a preface. We just 20 received these documents this morning. And looking through 21 them, it looks like the appellant may be making a claim for 22 financial disability based on some various doctors' letters 23 and other things contained in the information. 24 At this point I haven't had any time to fully 25 evaluate it. But if it's the Board's pleasure, I would 26 like to take the time to evaluate this, give the proper 27 forms to Mr. Grays so he can have them filled out 28 correctly, and perhaps we can look at the financial 10 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 disability issue in this matter, with the caveat that that 2 statute does not apply to the 1995, '96 or '97 years by the 3 terms of the statute. 4 MS. YEE: Okay. 5 MS. STEEL: Before we do that, I have just one 6 question, that Franchise Tax Board is the official policy 7 about that taking the money out from taxpayer's account, 8 that you're always looking at the tax return before because 9 there's always something involved like a mortgage payment 10 or exemptions, you know. It's not like a single one with 11 taking the tax out. 12 So how we figure it out when they're not responding 13 for MPA and they're not really responding anything, and 14 then you are ready to put the lien on their account and 15 start taking money out? How we figure it out? Because 16 some people has like, you know, married four or married, 17 you know, those deductions. How we really do that? 18 MS. SMALL: By statute, you are not entitled to any 19 deductions unless you file a tax return. 20 MS. STEEL: So you just assume that any taxpayers 21 at highest tax deductions? 22 MS. SMALL: No. We don't assume anything. What we 23 do is we take the income information we have. And then we 24 know it's an individual, so we use the individual's filing 25 status because that's the person who would receive the 26 income. Then we give them the standard deduction, and then 27 figure out the tax. We can't assume any kind of other 28 deductions because the IRS has made it very clear that you 11 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 are not entitled to any deduction until you file a tax 2 return. 3 MS. STEEL: So even the taxpayer already did do tax 4 returns before, that stopped doing it, but you never really 5 review any of those tax returns. But you just do the 6 standard deductions and, you know, from the single one. 7 MS. SMALL: Exactly. 8 MS. STEEL: And then you start taking money out 9 from the account. 10 MS. SMALL: Well, we give them a demand for a tax 11 return. 12 MS. STEEL: I understand that part. But -- so when 13 taxpayer is not really responding any of those letters, 14 then you just proceed. 15 MS. SMALL: Well, then they get notice at their 16 employer, because they must be working somewhere to get 17 their wages withheld. So they get that additional notice 18 at the employer when we begin to do collection. Then if 19 they do not file a tax return at that point, then it turns 20 into the actual collection. 21 So there are several steps at where the taxpayer 22 receives various notices, not to mention additional bill 23 requests that we send before we begin collection. So 24 there's quite an extensive collection notification process 25 before we actually begin collecting the money. 26 MS. STEEL: Thank you. 27 MS. YEE: Thank you, Ms. Steel. 28 MS. KELLY: Ms. Yee. 12 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 MS. YEE: Yes. 2 MS. KELLY: Ms. Yee. 3 MS. YEE: I'm sorry. Ms. Kelly. 4 MS. KELLY: Thank you. Before we go forward and 5 have FTB look at the evidence submitted, can we ask 6 appellant to clarify whether or not he had periods of 7 employment from 1998 through 2002? 8 MS. YEE: Yes. Mr. Grays. 9 MR. GRAYS: Yes. Yes, I've been with the State of 10 California, with the exception of 2000. In 2000 I was 11 employed but I was on leave. There was some issues and I 12 had to -- I was not working. 13 MS. YEE: Okay. 14 MS. KELLY: Can we ask appellant to clarify if it 15 was a medical reason that he was on leave? 16 MR. GRAYS: Um, yeah. I was assaulted on-the-job, 17 and as a result it led to additional medical issues. 18 MS. KELLY: Okay. 19 MS. MANDEL: Some of that, I think, is described in 20 your materials that you've brought today. 21 MR. GRAYS: Yes, it is. I would rather you read it 22 than me discuss it. 23 MS. YEE: Okay. That's fine. All right. Thank 24 you. 25 Pleasure of the Members? 26 MR. GRAYS: May I respond just to -- 27 MS. MANDEL: Can we see if he had anything he 28 wanted to add on the record before we -- 13 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 MS. YEE: Okay. 2 MR. GRAYS: Yes, I would. With regard to 3 notification, Ms. Small -- I do understand what she was 4 saying with regards to notification, particularly with 5 regards to demand for payments for bills, notification to 6 let you know whether collection efforts are going to take 7 place or subsequent tax liens would be filed. I 8 received -- in the 15-year period, I received only one 9 notification, and that was only because it was after. It 10 was after 2003, with regards to a tax lien. But prior to 11 that, I'd received none. 12 And, again, my whole thing is that I worked for the 13 State of California and if I'd received holding 14 modifications through my employer, through HR, then it 15 wasn't -- and it would not have been difficult for them to 16 secure my information or even my phone number and just say, 17 hey, give me a call. I've had the same number for, like, 18 15 years. I've been with the State 30 years. 19 MS. YEE: Okay. Anything further? I want to just 20 ask a question. 21 MR. GRAYS: No, not at the moment. 22 MS. YEE: Okay. Franchise Tax Board, what's our 23 normal process for notifying anyone in the appellant's 24 situation with respect to any liens or garnishments and 25 that type of thing? 26 MS. SMALL: A copy is sent to the last known 27 address. 28 MS. YEE: Okay. 14 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 MS. SMALL: And then, of course, with garnishments, 2 the garnishment is sent to either -- in a withholding 3 situation, to the employer, and I assume there's notice to 4 the taxpayer when money is missing from their check and it 5 states to a tax lien generally. But they should have 6 gotten a copy of that withholding order because it comes in 7 a triplicate. And then on a tax lien, of course, when we 8 file that, a copy is sent to the last known address. 9 MS. YEE: Okay. 10 MR. GRAYS: Can I -- well, with regards to the tax 11 liens, there have been approximately seven liens filed 12 against me. Two years I received consecutive liens for the 13 same years. I was not notified. I was notified for only 14 one lien that was filed, which was in 2003. 15 The problem is, is that -- I guess I haven't done a 16 good job of clarifying it -- is that the address that the 17 Franchise Tax Board is using is an ineffective address. 18 But I don't understand why, because in 1996 I went into the 19 Santa Ana office on three different occasions. And each 20 time you go into the Franchise Tax Board, the routine's the 21 same. They ask for your Social Security; they ask for your 22 current address; they ask for your current work location, 23 your current telephone number and your current work 24 telephone number. 25 So I don't know why, but based upon what I read in 26 the hearing summaries from 1995 to 2002, the Franchise Tax 27 Board has been sending all of their communications to me to 28 1043 Magnolia Street, which was not my address. It wasn't 15 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 my address since 1983. 2 MS. YEE: Okay. I think the combination of the 3 late filing of the returns and when the information about 4 your current address was actually provided may have caused 5 some of the confusion. But there also was no record of 6 anything being returned by the post office either. So it 7 appears -- 8 MR. GRAYS: Well, I think maybe -- and another 9 issue which is exacerbated by all this is I've had an 10 identity theft issue. And I think that might be, because 11 if you think about it, the letters that were sent out -- I 12 don't know about now, but prior to 2000 -- had your Social 13 Security number all over it as well as your address. 14 MS. YEE: Let me do this, I'm going to move a 15 30/30/30 on this. Mr. Grays, we're going to take a look at 16 the information you submitted today. Franchise Tax Board 17 will have an opportunity to take a look at the information 18 submitted today. I will also additionally ask them to just 19 clarify with you because it still appears that there's some 20 confusion on your part with respect to where notices have 21 been sent, and I do think that the delay in the filing of 22 the returns may have exacerbated, you know, kind of an 23 understanding of where such notices would be sent. 24 But, I mean, that's all kind of said and done now. 25 We are going to take a look at the information you 26 submitted today, just to get an understanding what happened 27 during the periods at issue and whether there is enough 28 information here to at least have us consider any type of 16 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 financial disability. 2 MR. GRAYS: You have enough information. I would 3 like to stipulate, though, that during that time in -- 4 actually, November 2003 to January 2004, I went into the 5 office and I requested an installment plan. And I updated 6 everything. And subsequently, that's when they started 7 garnishing. 8 Okay. It was an agreement for the State to take 9 money from me because I knew it would be a while before I 10 would be able to even address this even further. And I 11 also knew that there would be a time when they would take 12 more from me than what I owed, so that's where we're at. 13 MS. YEE: Okay. And I don't know that we have any 14 evidence of an installment plan ever having been -- 15 MS. MANDEL: Yeah, I think it's in the -- it's in 16 the book. There's something about an installment plan in 17 the book that he brought today, from FTB. And when FTB 18 looks at the materials, if they can, in that, address -- I 19 don't know if there's any timing issues on notices, maybe 20 not, because of the installment plan going to -- you know, 21 he's sort of also saying that he gave notice of his correct 22 address at FTB, in the Santa Ana office, and I don't know 23 what they do with that and how that impacts the address 24 files for any notices that might have gone out. 25 But if all or most of the money that we're talking 26 about was pursuant to the installment agreement, which I 27 think there's some paperwork in here that I saw in flipping 28 through it, then I don't know how that impacts it. But I 17 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 don't recall specifically FTB addressing anything about 2 taxpayer going to an FTB office and giving them a different 3 address than the one that was in the address file. And 4 he's making that -- he's saying that today. You might have 5 said it in your papers, too, but you filed voluminous 6 papers and maybe it's a little point that got missed or 7 missed on my read. 8 MR. GRAYS: It's a lot, I know. 9 MS. MANDEL: So anyway, thank you. 10 MS. YEE: Okay. So motion on the table to move a 11 30/30/30. Is there a second? 12 MR. HORTON: Second. 13 MS. YEE: Second by Mr. Horton. 14 Mr. Epolite, or Ms. Kelly, do you want to just 15 describe the process for Mr. Grays while we're here? 16 MS. KELLY: Certainly. Mr. Grays, what will happen 17 is the Appeals Division of the Board of Equalization will 18 send a letter to you and to the Franchise Tax Board, 19 describing what the Board Members are requesting. FTB will 20 respond first because they're going to look at all of your 21 new evidence, and they're going to provide their response 22 to the evidence. And then you will have 30 days thereafter 23 to disagree with FTB and let us know why they are wrong or 24 right. And then the last 30-day period is for the Appeals 25 Division to write up a proposed decision for the Board to 26 consider. And so that's what the 30/30/30 is. And then 27 this will come back on a consent calendar. 28 MS. YEE: A nonappearance calendar, yes, uh-huh. 18 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 Okay. So, Mr. Grays, we will have the Franchise Tax Board 2 work with you based on the review of the information you 3 submitted today. 4 Members, without objection, such will be the order. 5 Thank you very much for providing the additional 6 information. 7 MR. GRAYS: Thank you. 8 (The matter concluded at 11:19 a.m.) 9 ---oOo--- 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 19 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 2 REPORTER'S CERTIFICATE 3 4 State of California ) 5 ) ss 6 County of Sacramento ) 7 8 I, KATHLEEN SKIDGEL, Hearing Reporter for the 9 California State Board of Equalization certify that on 10 October 19, 2010 I recorded verbatim, in shorthand, to the 11 best of my ability, the proceedings in the above-entitled 12 hearing; that I transcribed the shorthand writing into 13 typewriting; and that the preceding pages 1 through 19 14 constitute a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: November 23, 2010 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 20 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333