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 11 12 13 14 15 FINAL ACTIONS 16 17 18 19 20 21 22 23 REPORTED BY: JULI PRICE JACKSON 24 CSR NO. 5214 25 26 27 28 1 1 P R E S E N T 2 3 For The Board Betty T. 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 Chiang 10 State Controller (per Government Code 11 Section 7.9) 12 Diane G. Olson Chief, Board 13 Proceedings Division 14 15 ---OOO--- 16 17 18 19 20 21 22 23 24 25 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 OCTOBER 19, 2010 4 ---o0o--- 5 MS. YEE: The items under submission, what is 6 our first one, please? 7 MS. OLSON: Our first one is B1a, Donald R. 8 Diamond and Joan B. Diamond and B1b, Frank A. Aries and 9 Mary Lou Aries. 10 ---o0o--- 11 B1a DONALD R. DIAMOND AND JOAN B. DIAMOND 12 NO. 441030 13 B1b FRANK A. ARIES AND MARY LOU ARIES 14 NO. 464475 15 ---o0o--- 16 MS. YEE: Okay. We are on item B1a, Donald R. 17 Diamond and Joan B. Diamond and B1b, Frank A. Aries and 18 Mary Lou Aires. 19 May I have a motion, please. 20 MS. STEEL: to grant for the Appellant. 21 May I have a second? Is there a second? 22 MS. STEEL: Second. 23 MS. YEE: Second by by Ms. Steel. 24 Discussion? 25 MS. ALBY: I will -- if I may, Madam Chair? 26 MS. YEE: Yes, Ms. Alby. 27 MS. ALBY: I'll just revisit my thought during 28 the hearing. 3 1 These taxpayers were forced to sell their 2 private property by the government and now we're looking 3 at -- to profit from that again for sale by making them 4 pay the taxes up front. 5 When they acquired the real estate in 6 Scottsdale, they qualified for tax deferral under 7 Section 1033. The subsequent contribution of that 8 property to an LLC, in my mind, is irrelevant, even if 9 transferring the property might, hypothetically, raise 10 concerns in a different situation. 11 In this situation the taxpayers retained all 12 the control over the LCC's (verbatim) real estate that 13 they had before as tenants in common. 14 And I really believe that we should, indeed, 15 grant that petition. 16 MS. YEE: Okay, thank you, Ms. Alby. 17 I'd like to pose a question to Appeals because 18 I do think there's a distinction here. 19 And to the extent the Appellants relied heavily 20 on the Magneson decision, I do think that there were 21 limitations in the Court's holding in that case that is 22 relevant here. 23 And Ms. Kelly or Mr. Epolite, are you -- can 24 you speak to that? 25 MS. KELLY: Certainly. The Magneson case is 26 distinguishable here in that the Court specifically 27 limited its holding to circumstances where the acquired 28 property was transferred into a partnership where the 4 1 Appellants were a general partner. 2 And the Court specified that the Appellants 3 maintained ownership and control of the property as 4 general partners. 5 And, so, that's distinguished here because 6 we're talking about a limited liability company where 7 the right with respect to the property was a veto power 8 to prevent sale. And, so -- as compared to a general 9 partner control over the management daily and long term 10 management of the property, it's significantly 11 different. 12 The other difference is that Magneson involved 13 the holding requirement and this appeal involves whether 14 or not there was -- the acquired property was of a like 15 kind. 16 MS. YEE: Right. 17 MS. STEEL: there wasn't just one tenant and 18 you don't need day-to-day management for that 19 building. 20 MS. KELLY: Right. 21 MS. STEEL: And then they went through the 22 proper procedure until the lender required that it has 23 to be under LLC. So, that's the only reason that they 24 changed that. 25 I think its intention was very important for 26 this case. 27 MS. YEE: Ms. Alby? 28 MS. ALBY: And my feeling is if the -- if they 5 1 had any -- if there was any real precedent -- we had the 2 perfect precedent here. We never do have the perfect 3 precedent. We don't publish our cases. People don't 4 have defined guidelines, really. 5 If they have been able to -- if they knew this 6 wouldn't work, if they'd been able to say to the bank 7 that was insisting on this form of ownership, "We can't 8 do this because it's going to cost us," I am guessing 9 that they would have had -- the bank would have worked 10 with them. 11 I just feel we put them in the position -- not 12 we, BOE, FTB -- but the government itself forced them 13 sell their property in San Francisco. They moved -- 14 they did the 1033. They met those requirements. They 15 maintained control. 16 And I just -- I guess I'm on the record where 17 I'm at. 18 MS. KELLY: There is one more issue. 19 MS. YEE: Ms. Kelly? 20 MS. KELLY: The law has changed since Magneson 21 and, so, what happened here is the acquired property 22 under California law was -- after -- on the second step, 23 converted into personal property. 24 MS. YEE: Right. 25 MS. KELLY: And, so, the question is whether or 26 not that's a like kind property. 27 MS. YEE: Okay. Other discussion, Members? 28 Mr. Horton? 6 1 MR. HORTON: Madam Chair, not to really argue 2 the case one way or the other, but just for some 3 clarification on the Magneson case and the -- how it 4 compares to this case. 5 The issue of control, the taxpayer argued that 6 the transaction in and of itself, sole purpose was to 7 acquire this property. So, the only thing that the LLC 8 could do is either -- is manage the property, encumber 9 it with loans of some sort or sell it. 10 And he argued -- they argued that the 11 partnership agreement gave them control by virtue of it 12 required unanimous consent control over the sale of the 13 property, subsequent encumbrance of the property, but 14 not the management because that was handled by the 15 general partners. 16 Would that in and of itself just the meet the 17 tenant of control for Magneson? 18 MS. KELLY: Magneson? 19 MR. HORTON: Magneson, yeah. 20 MS. KELLY: The nature of it is simply 21 different from a general partner where the Court -- 22 under previous law where the Court found that the 23 Appellant -- the taxpayer continued to own and control 24 the property is distinguishable from the situation where 25 you have a right to veto a sale. 26 MR. HORTON: Let me pass for now on that. 27 MS. YEE: All right, other discussion? 28 Motion by Ms. Alby, second by Ms. Steel to 7 1 grant the appeal. 2 Please call the roll. 3 MS. OLSON: Madam Chair? 4 MS. YEE: No. 5 MS. OLSON: Ms. Alby? 6 MS. ALBY: Aye. 7 MS. OLSON: Ms. Steel? 8 MS. STEEL: Aye. 9 MS. OLSON: Mr. Horton? 10 MR. HORTON: Pass, sorry. 11 MS. OLSON: Ms. Mandel? 12 MS. MANDEL: No. 13 MS. YEE: Ms. Mandel, were you a no? I'm 14 sorry. 15 MS. MANDEL: Yeah. 16 MR. HORTON: Mr. Horton is no, no. 17 MS. OLSON: Pardon me? 18 MS. YEE: Mr. Horton is a no, Ms. Mandel is 19 recorded as a no. 20 MS. OLSON: Motion fails. 21 MS. YEE: Okay. May I have another motion, 22 please? 23 I'll move to sustain the Franchise Tax Board. 24 Is there a second? 25 MS. MANDEL: Second. 26 MR. HORTON: Madam Chair, I'd like to have 27 permission just to review the Magneson case again. 28 Is there any way we could put this over? 8 1 MS. YEE: We can put it over 'til tomorrow. 2 MR. HORTON: Okay. 3 MS. YEE: Do you have specific questions for 4 Appeals with respect to the Magneson case? 5 MR. HORTON: Not at this time, but if we put it 6 over, will that be -- can I ask those questions then? 7 MS. YEE: To Appeals, but the parties will not 8 be present tomorrow. 9 MR. HORTON: No, not the parties, to the 10 Appeals. 11 I just want to read the case again, a 12 particular section that gives me pause, if I could? 13 MS. KELLY: Okay. 14 MS. MANDEL: Is Appeals going to be here? 15 MS. KELLY: I did bring a second suit. 16 MR. EPOLITE: I brought extra underwear. 17 MS. YEE: That's okay. 18 Are there specific provisions you want Appeals 19 to focus on? 20 MR. HORTON: No, not -- 21 MS. ALBY: Madam Chair? 22 THE COURT: Ms. Alby? 23 MS. ALBY: Could I ask the question, what I 24 recall is that the FTB actually conceded that the 25 purchase of the Arizona property as tenants in common 26 satisfied the like kind requirement. 27 MS. KELLY: That's correct. 28 MR. EPOLITE: The initial purchase, yes. 9 1 MS. ALBY: But they had the same veto rights 2 with the LLC. 3 MS. KELLY: Right and then in the same 4 transaction, that's when the interest in the limited 5 liability company was made. 6 So, it was in the same -- they held it for a 7 moment as real property and then in the same transaction 8 they purchased the interest in the limited liability 9 company. 10 That's where the step transaction doctrine 11 comes in. 12 MS. ALBY: But they had the same rights in the 13 LLC? 14 MS. KELLY: That's -- 15 MS. ALBY: The veto rights, they had -- 16 MS. KELLY: -- what they asserted, yes. 17 MS. ALBY: -- control. 18 MS. KELLY: Well, there's the right to veto the 19 sale, right. 20 MR. EPOLITE: Mr. Horton -- 21 MR. HORTON: Madam Chair, may I? 22 MS. YEE: Mr. Horton, yes. 23 MR. HORTON: You were about to say something? 24 MR. EPOLITE: If I could, regarding Magneson? 25 In the final paragraph of the case, the Court 26 of Appeals does state, 27 "Our holding in this case is limited to those 28 situations in which the taxpayer exchanges 10 1 property for like kind property with the intent 2 of contributing the acquired property to a 3 partnership for a general partnership 4 interest." 5 MS. YEE: It's limited. 6 MR. EPOLITE: So, in that respect, it seems to 7 be limited to that alone. 8 MR. HORTON: So, is -- so, it seems to -- the 9 Court seems to put some emphasis on the control issue 10 and whether or not the control is that of a general 11 partnership, which in and of itself, pursuant to the 12 partnership law, makes it -- somehow gets it into a gray 13 area of being real property or having the same 14 attributes? 15 MR. EPOLITE: Well, at least as of -- as a 16 general partner. 17 Because in Magneson it was dropped into a 18 limited partnership, but that the interest acquired by 19 the taxpayer was the general partnership interest. 20 MR. HORTON: So, if we were to correlate the 21 two -- 22 MR. EPOLITE: So -- 23 MR. HORTON: -- just trying to -- 24 MR. EPOLITE: -- to extend that out that in 25 this limited partnership in which the property Magneson 26 was dropped into, if this particular taxpayer had 27 acquired a limited partnership interest -- 28 MR. HORTON: You mean general? 11 1 MR. EPOLITE: If the taxpayer in Magneson had 2 acquired a limited partnership interest -- 3 MR. HORTON: Okay. 4 MR. EPOLITE: -- as opposed to the general 5 partnership interest, then they would not have 6 prevailed. 7 MR. HORTON: Because it would have been a 8 personal property interest -- 9 MS. MANDEL: As a limited partnership. 10 MR. HORTON: -- as a limited partnership. 11 MR. EPOLITE: As a limited partnership 12 interest. 13 MR. HORTON: As opposed to real property 14 interest. 15 MR. EPOLITE: As a general partner. 16 MR. HORTON: And, so, the -- the transfer -- 17 the complying with the 1033 exchange, we're saying we 18 would then implement -- impose the step transaction rule 19 and say that the compliance with the 1031 exchange at 20 the closing of the escrow, in of itself, was not enough 21 in that the subsequent transfer to a corporation, which 22 in and of itself would be exempt by virtue of 23 transferring to a commencing corporation or partnership, 24 that, in effect, they've transferred this real 25 property -- ownership in real property for a now 26 personal ownership and personal property via the 27 interest in the LLC? 28 MR. EPOLITE: That's correct. 12 1 MS. MANDEL: And their argument against that 2 was they alleged an -- they alleged they had an 3 independent business purpose and that there was no extra 4 steps. 5 That's their argument, the taxpayer's argument, 6 right? 7 MR. EPOLITE: Right. 8 MS. YEE: Ms. Alby? 9 MS. ALBY: Thank you, Madam Chair. 10 I am reminded that LLCs did not exist when the 11 Magneson case was decided. 12 So, it seems to me a real stretch to say that 13 the Court only meant to limit it to partnerships and not 14 to LLCs. 15 I find that a stretch, big time. 16 MR. HORTON: Yeah, that's not -- Madam Chair? 17 MS. YEE: Yes? 18 MR. HORTON: That's not really what -- that, in 19 and of itself, is not the deciding factor for me. 20 I try to go to the intent of the law and the 21 courts seems to intend that there been a like kind 22 ownership at the end of the day. And however that's 23 consummated, so be it. 24 And, so, it goes back to this control issue and 25 whether or not you maintain control of the transaction. 26 What about the subsequent change in the law 27 when -- I think the legislature or Congress changed the 28 law to say that transfers from one partnership to 13 1 another is or is not qualified in and of itself. 2 I can't -- 3 MR. EPOLITE: That seems to be another basis in 4 which Magneson may be distinguishable because the 5 transactions at issue in Magneson -- 6 MR. HORTON: Do you recall the legislation? I 7 mean, 1984 -- 8 MR. EPOLITE: It was -- 9 MR. HORTON: -- if I remember? 10 MR. EPOLITE: -- Internal Revenue Code 11 Section 1031 was amended to provide that a like kind 12 exchange does not include, under A2D, interest in a 13 partnership, which the Magneson Court made note of in 14 its decision. 15 But the fact that in Magneson the transactions 16 at issue occurred prior to that amendment. 17 MR. HORTON: And what was the language in the 18 Magneson case when they made reference to that? 19 I'm really -- Madam Chair, I am just trying to 20 avoid having -- 21 MS. YEE: That's okay. 22 MR. EPOLITE: In a footnote the Court states, 23 "We note that for transactions executed after 24 July 18th, 1984, Congress has amended 25 Section 1031A to exclude the exchange of 26 partnership interests." 27 And then just reference to legislation and, 28 "Revision aimed primarily at forbidding taxfree 14 1 exchange of burnt out tax shelter partnership 2 interests." 3 MR. HORTON: Okay. What about the -- legally, 4 from the Appeals perspective, not to argue one case side 5 or the other, that's what we do up here -- what about 6 the argument that the step transaction does not apply in 7 that this was a prudent decision on his part? 8 And, so, what you would have is you would have 9 an original sale where GGA, the partnership in the 10 beginning, sold off and took its funds and acquired 11 several different properties -- this being one of six or 12 seven, don't recall -- and transferred that income via 13 1033 to acquire this property, one transaction, that in 14 and of itself is exempt, correct? 15 MS. KELLY: That's right. That's a tax 16 deferred exchange. 17 MR. HORTON: Tax deferred exchange. 18 Then the subsequent transfer of that asset into 19 a commencing partnership is exempt as well. 20 MS. KELLY: You have the immediate dropping of 21 the Scottsdale property -- 22 MR. HORTON: Right. 23 MS. KELLY: -- into the limited liability 24 company in exchange for an interest in the limited 25 liability company. 26 And, so, the step purchasing the Scottsdale 27 property, that's the question, was that necessary? 28 Could Appellants have simply taken their 15 1 proceeds from the condemnation of the GGA Apartments and 2 purchased an LLC interest? 3 They say no, that they wanted to hold the cash 4 and they wanted that -- they wanted that in the chain of 5 events. They wanted the fee ownership of the property 6 in the chain of events. 7 The transactions occurred very nearly 8 simultaneously, as part of the same agreement. 9 MR. HORTON: Can I -- 10 MS. YEE: Okay. 11 MR. HORTON: -- sorry. 12 MS. YEE: That's all right. 13 MS. MANDEL: So, we have a pending motion, do 14 we -- 15 MS. YEE: Yeah, I'll withdraw the motion. We 16 will put this matter over until tomorrow. 17 MR. HORTON: My apologies, I tried -- 18 MS. YEE: That's all right, it's complex. 19 MR. HORTON: -- to preserve your uniforms. 20 MS. YEE: Okay, very well. 21 ---o0o--- 22 23 24 25 26 27 28 16 1 MS. YEE: Next matter, please? 2 MS. OLSON: Our next matter is B3, Edmund 3 (Chad) Siva, deceased. 4 ---o0o--- 5 B3 EDMUND (CHAD) SIVA (DECEASED) 6 NO. 384247, 390860, 401330, 401331 7 ---o0o--- 8 MS. YEE: Okay. Members, we're on item B3. 9 MS. STEEL: Are we voting together, B3. 10 MS. YEE: Let's do them separately, I think 11 there was a penalty issue involved in one of them. 12 Okay, item B3, Edmund (Chad) Siva, may I have a 13 motion, please? 14 MS. MANDEL: I'd deny the appeal on abstention 15 grounds. 16 MS. YEE: On abstention grounds, okay. 17 MS. MANDEL: Yeah. 18 MR. HORTON: Second. 19 MS. YEE: Consistent with our prior actions. 20 Okay, motion by Ms. Mandel to deny the appeal 21 on abstention grounds. 22 Second by Mr. Horton. 23 Discussion, please? 24 MS. MANDEL: And this was the one with the 25 penalty, so -- 26 MS. YEE: Yes. 27 MS. MANDEL: -- that's not really abstention on 28 the penalty, but -- 17 1 MS. YEE: Okay. Objection? 2 MS. STEEL: Objection. 3 MS. YEE: Okay, please call the roll? 4 MS. OLSON: May I say who had the second? 5 I'm sorry, I didn't hear. 6 MS. YEE: Mr. Horton. 7 MS. OLSON: Mr. Horton, thank you. 8 Madam Chair? 9 MS. YEE: Aye. 10 MS. OLSON: Ms. Alby? 11 MS. ALBY: Yes. 12 MS. OLSON: Ms. Steel? 13 MS. STEEL: No. 14 MS. OLSON: Mr. Horton? 15 MR. HORTON: Aye. 16 MS. OLSON: Ms. Mandel? 17 MS. MANDEL: Aye. 18 MS. OLSON: Ms. Alby? 19 MS. ALBY: Aye. 20 MS. OLSON: Ms. Alby is an aye, motion 21 carries. 22 MS. YEE: Did you want to split the question on 23 the penalty? 24 MR. HORTON: Yeah, sure. 25 MS. YEE: Okay, hold on. 26 MS. MANDEL: Since an abstention really doesn't 27 apply to the penalty, I'll just -- my motion really was 28 on the main issue, I suppose. 18 1 MS. YEE: All right. 2 MS. MANDEL: So -- 3 MS. YEE: May I have a subsequent motion on the 4 penalty issue then? 5 MS. MANDEL: So, did -- Ms. Alby wanted to vote 6 on the -- 7 MS. YEE: On the main issue, Ms. Alby? 8 MS. ALBY: I did, I supported it. 9 MS. YEE: Okay, all right. 10 So, it's -- the motion carries on a 4-1 vote. 11 Is there a motion on the penalty issue? 12 MS. ALBY: Oh, boy. 13 MR. HORTON: This is so confusing for the 14 taxpayer. 15 I think courts ruled against them eventually, 16 but -- 17 MS. KELLY: Ms. Yee? 18 MS. YEE: Yes? 19 MS. KELLY: If I could recap? 20 It was the 2004 year that -- where the return 21 was due after he became ill. 22 And then in -- so, that might apply to 2005 as 23 well. He was married and, so, there is not a lot of 24 information, but to the extent that you have a spouse 25 who's able to file a return, then illness does not 26 constitute reasonable cause. 27 MS. MANDEL: Right, that's -- 28 MS. KELLY: However, if they weren't 19 1 cooperating necessarily or living together on the 2 return, that might not be a factor. 3 MS. MANDEL: -- right and that's -- I think 4 that's part of why I was asking Mr. Shibou if he knew 5 him personally at the time and what he knew personally. 6 I was trying to get some -- 7 MS. KELLY: Some information. 8 MS. MANDEL: -- information based on personal 9 knowledge into the record. 10 MS. YEE: Okay, Ms. Alby, do you have a motion 11 on the penalty? 12 MS. ALBY: I don't know what to do. 13 MS. YEE: It's very lacking on documentation, 14 that's the problem. 15 Well, based -- based on the testimony, if there 16 were documentation to substantiate the testimony, it 17 would apply to the 2004 year and potentially the 2005 18 year, so -- 19 MS. MANDEL: Yeah, I thought that 2005 sounded 20 more -- 21 MR. EPOLITE: That was a joint return for 22 2005. 23 MS. YEE: Right. 24 MS. KELLY: And it was also within several 25 years of his passing away and Mr. Shibou -- 26 MS. MANDEL: When it was finally filed, right? 27 MS. KELLY: 2005 was filed -- it's going to 28 take me a minute. 20 1 MS. MANDEL: The 2005 return was due in 2006. 2 MR. EPOLITE: Right. 3 MS. MANDEL: And he passed away at the 4 beginning of -- 5 MR. EPOLITE: '08. 6 MS. MANDEL: -- '08. 7 MS. KELLY: I think it was filed in 2007 from 8 my notes. 9 MS. YEE: Is this -- 10 MS. MANDEL: Right, but in terms of when he was 11 sick versus when he -- 12 MS. KELLY: Well, Mr. Shibou said he was ill 13 for approximately three years. 14 MS. MANDEL: Right. 15 MS. KELLY: So, that's definitely within that 16 time period. 17 MS. STEEL: But taking the amended return -- 18 MS. YEE: And 2004 was the amended return, 19 right, with no original? 20 MS. KELLY: That's right, 2003 and 2004. 21 MS. MANDEL: Right. 22 MS. KELLY: He didn't file originals, but he. 23 filed a 540X and it's treated as -- 24 MS. MANDEL: Right, so, that's why they called 25 it amended. 26 MS. YEE: All right. 27 MS. ALBY: Move to abate 2004. 28 MS. YEE: How about that? 21 1 Motion by Ms. Alby to abate the penalty for 2 2004 and 2005 years. 3 Is there a second? 4 MR. HORTON: Second. 5 MS. YEE: Second by Mr. Horton. 6 Further discussion? 7 Please call the roll. 8 MS. OLSON: Madam Chair? 9 MS. YEE: No. 10 MS. OLSON: Ms. Alby? 11 MS. ALBY: Aye. 12 MS. OLSON: Ms. Steel? 13 MS. STEEL: At least an article for that aye. 14 MS. OLSON: Mr. Horton? 15 MR. HORTON: Aye. 16 MS. OLSON: Ms. Mandel? 17 MS. MANDEL: Abstain. 18 MS. OLSON: Motion carries. 19 MS. YEE: Okay. 20 ---o0o--- 21 22 23 24 25 26 27 28 22 1 MS. OLSON: Our next item is B4, Harold T. 2 Riggs, Junior. . 3 MS. YEE: Okay. 4 MS. MANDEL: On B -- oh, my voice -- on B4 and 5 I could also do the same one on B5 because I think the 6 only issue is the -- 7 MS. YEE: Yes. 8 MS. MANDEL: -- one, so, it would be to deny on 9 the grounds of abstention. 10 MS. YEE: Okay. 11 MR. HORTON: Second. 12 MS. YEE: Motion by -- we're taking up both B4, 13 Harold T. Riggs, Jr. and B5, Wayne L. Hause and Kelly R. 14 Hause together. 15 ---o0o--- 16 B4 HAROLD T RIGGS, JR. 17 NO. 449373, 474423, 504746 18 B5 WAYNE L. HAUSE AND KELLY R. HAUSE 19 NO. 467603 20 ---o0o--- 21 MS. YEE: Motion by Ms. Mandel to sustain the 22 Franchise Tax Board on abstention grounds, second by 23 Mr. Horton. 24 Objection? 25 MS. STEEL: Objection. 26 MS. YEE: Okay, discussion? 27 Hearing none, please call the roll. 28 MS. OLSON: Madam Chair? 23 1 MS. YEE: Aye. 2 MS. OLSON: Ms. Alby? 3 MS. ALBY: Aye. 4 MS. OLSON: Ms. Steel? 5 MS. STEEL: No. 6 MS. OLSON: Mr. Horton? 7 MR. HORTON: Aye. 8 MS. OLSON: Ms. Mandel? 9 MS. MANDEL: Aye. 10 MS. OLSON: Motion carries. 11 MS. YEE: Okay. 12 ---o0o--- 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 24 1 MS. YEE: Next item? 2 MS. OLSON: The next item is B7, Steven T. 3 Waltner and Sarah V. Waltner. 4 ---o0o--- 5 B7 STEVEN T. WALTNER AND SARAH V. WALTNER 6 NO. 468742 7 ---o0o--- 8 MS. YEE: Okay, the next item is Steven T. -- 9 B7, Members, Steven T. Waltner and Sarah V. Waltner. 10 May I have a motion, please? 11 MR. HORTON: Motion to sustain FTB. 12 MS. YEE: Okay, do you want to take up the 13 penalty, entertain a penalty here, Mr. Horton? 14 MS. KELLY: This was the first appeal of this 15 nature. 16 MR. HORTON: First time? 17 Well, I'd like to be consistent, normally I 18 would be -- 19 MS. YEE: That would a $750 frivolous appeal 20 penalty -- 21 MR. HORTON: Right. 22 MS. YEE: -- Mr. Horton. Is that part of your 23 motion? 24 MR. HORTON: So be it. 25 MS. YEE: Okay, motion by Mr. Horton to sustain 26 the Franchise Tax Board and to impose a $750 frivolous 27 appeal penalty. 28 Is there a second? 25 1 MS. MANDEL: Second. 2 MS. YEE: Second by Ms. Mandel. 3 Discussion? 4 MS. STEEL: What is this for $500? Is it 5 recommendation from the Department, the penalty? 6 MS. KELLY: No, no, that's the frivolous return 7 penalty. 8 MS. STEEL: Oh, so, we are -- 9 MS. KELLY: That was imposed by FTB. 10 So, we're looking at the frivolous appeal 11 penalty. 12 MS. STEEL: So, that's 750 on the top of this 13 500? 14 MS. KELLY: Yes, yes, that's the motion. 15 MS. MANDEL: They're for separate things. 16 MS. KELLY: Yes, they're for separate things. 17 MS. STEEL: Okay. 18 THE COURT: Okay, we have a motion and a 19 second. 20 Without objection, that motion carries. 21 ---o0o--- 22 23 24 25 26 27 28 26 1 MS. OLSON: Our next item is B8, Donald R. Lee 2 and Debra J. Lee. 3 ---o0o--- 4 B8 DONALD R. LEE AND DEBRA J. LEE 5 NO. 513965 6 ---o0o--- 7 MS. YEE: Okay. Item B8, Donald R. Lee and 8 Debra J. Lee, may I have a motion, please? 9 MS. ALBY: Move to sustain the Franchise Tax 10 Board. 11 MS. YEE: Motion by Ms. Alby to sustain the 12 Franchise Tax Board. 13 Is there a second? 14 MR. HORTON: Second. 15 MS. YEE: Second by Mr. Horton. 16 Discussion? 17 MS. STEEL: Just want to ask, there is some 18 deductions being counted already? 19 MS. KELLY: Yes, there's a little over $13,000 20 allowed in error. 21 MS. STEEL: $13,000, okay. 22 MS. YEE: Okay. 23 Motion by Ms. Alby, second by Mr. Horton to 24 sustain the Franchise Tax Board. 25 Without objection, that motion carries. 26 ---o0o--- 27 28 27 1 MS. OLSON: Our next item is B10, Cecilia Reza. 2 ---o0o--- 3 B10 CECILIA REZA 4 NO. 506933 5 ---o0o--- 6 MS. YEE: Okay, I'm sorry, B10, yes? 7 MS. OLSON: Yes. 8 MS. YEE: Okay. 9 MS. MANDEL: Move to the sustain the Franchise 10 Tax Board. 11 And I thought that there was a reference in the 12 materials that payment might be difficult, but -- you 13 know, I looked at some of these cases so long ago. 14 So, if that was an issue in this one -- you 15 don't think so? 16 Okay. 17 MS. KELLY: But we can certainly -- 18 MS. MANDEL: I had a note here about payment 19 plans. 20 MS. KELLY: -- we can certainly include 21 information in the letter decision just to be sure. 22 MS. MANDEL: Okay. 23 MS. YEE: Yeah, I think there was a reference 24 about a payment plan, an installment plan. 25 Okay, motion by Ms. Mandel to sustain the 26 Franchise Tax Board. 27 Is there a second? 28 I will second that motion. 28 1 Discussion? 2 Hearing none, without objection, motion 3 carries. 4 ---o0o--- 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 1 MS. OLSON: Our next items is B11, Haik 2 Arakelian and Alice Arakelian. . 3 ---o0o--- 4 B1 HAIK ARAKELIAN AND ALICE ARAKELIAN 5 NO. 442173 6 ---o0o--- 7 MS. YEE: Okay, item B11, Haik Arakelian and 8 Alice Arakelian, may I have a motion, please? 9 MS. MANDEL: Move to sustain Franchise Tax 10 Board. 11 MS. YEE: Okay. 12 MR. HORTON: Second. 13 MS. YEE: Motion by by Ms. Mandel to sustain 14 the Franchise Tax Board, second by Mr. Horton. 15 Discussion? Objection? 16 MS. ALBY: Yes. 17 MS. YEE: Ms. Alby, do you want to speak to it? 18 MS. ALBY: It won't do any good. Let's move 19 on. 20 MS. YEE: Okay, all right. 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? 30 1 MR. HORTON: Aye. 2 MS. OLSON: Ms. Mandel? 3 MS. MANDEL: Aye. 4 MS. OLSON: Motion carries. 5 MS. YEE: Okay. 6 ---o0o--- 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31 1 MS. OLSON: Our next item is B13, Osage Garden 2 Apartments, LLC. . 3 ---o0o--- 4 B13 OSAGE GARDEN APARTMENTS, LLC 5 NO. 462197 6 ---o0o--- 7 MS. YEE: Okay, item B13, Osage Garden 8 Apartments, LLC, may I have a motion? 9 MS. MANDEL: Move to sustain the Franchise Tax 10 Board. 11 MS. YEE: Motion by Ms. Mandel to sustain the 12 Franchise Tax Board. 13 Is there a second? 14 MR. HORTON: Second. 15 MS. YEE: Second by by Mr. Horton. 16 Discussion? 17 MS. STEEL: I will. 18 MS. YEE: Ms. Steel? 19 MS. STEEL: I have question. 20 How we going to change this procedure from FTB? 21 Is that legislature's change or -- because after six 22 letters coming back, returned without letting taxpayers 23 know that we put the lien on the property, that's not 24 really right things to do. 25 Just one call, this taxpayer could not -- you 26 know, pay us means pay Franchise Tax Board, that's going 27 to save taxpayer interest and plus all these procedures 28 coming all the way up here that you could save some tax 32 1 money. 2 So, what can we do to ask Franchise Tax Board 3 to take another step? 4 MS. KELLY: Well, we can certainly ask them to 5 consider if there is any way to insert some kind of a 6 procedure into the automated process. 7 I think one of the concerns is that there are 8 tens of thousands of payments processed monthly, if not 9 more. 10 And, so -- 11 MS. STEEL: But not all six of them -- all 12 these letters coming back and not all of them are the 13 same thing. 14 MS. KELLY: I think -- 15 MS. STEEL: Some of them it just goes to the 16 taxpayer and we never get the returned mails, that's 17 different story. 18 But for this one, all six letters came back to 19 Franchise Tax Board. They totally ignored it. So, that 20 really I have a concern about that. 21 MS. KELLY: Right. And I was thinking about 22 the checks. They were changing their addresses on their 23 checks. And I think that's not necessarily clear 24 evidence that the taxpayer is going to change their 25 address -- 26 MS. STEEL: Yeah, I get that. 27 MS. KELLY: -- because -- 28 MS. STEEL: But, you know, after all these 33 1 letters keep coming back to Franchise Tax Board, they 2 know that taxpayer's not receiving it, then we have to 3 take another step just between them, that's what -- 4 MS. KELLY: We can certainly ask them to look 5 into the feasibility of adding a procedure at that 6 point. 7 MS. YEE: Thank you. 8 We have a motion and a second. 9 Objection? 10 Hearing none, that motion carries. 11 ---o0o--- 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 34 1 MS. OLSON: Our next item is B14, Elizabeth 2 Magness. 3 ---o0o--- 4 B14 ELIZABETH MAGNESS 5 NO. 508940 6 ---o0o--- 7 MS. YEE: Okay, these are the two waived -- 8 nonappearance cases, okay. 9 Item B14, Elizabeth Magness, may I have a 10 motion, please? 11 MR. HORTON: Motion to sustain the FTB. 12 MS. YEE: Okay. Do you want to suggested a 13 penalty, Mr. Horton? 14 MR. HORTON: Deny -- well -- 15 MS. KELLY: This is the third appeal. 16 MR. HORTON: Yes. 17 MS. KELLY: In the first appeal the Board 18 imposed a $750 frivolous appeal penalty. 19 In the second appeal the Board imposed a $2500 20 frivolous appeal penalty. 21 So, now we're on appeal No. 3. 22 MS. MANDEL: Do you remember if those -- well, 23 whether they came to hearing? 24 MS. KELLY: They both -- I'm not positive, they 25 both have petitions for rehearing. 26 MS. YEE: I think we have seen one before us. 27 Okay. 28 MS. MANDEL: So, the second one was 2500? 35 1 MS. KELLY: Yes. 2 MR. HORTON: And what are our options at this 3 point? 4 MS. KELLY: Well, the Board may impose the 5 frivolous appeal penalty if it determines that the 6 appeal was brought to delay the proceedings or on 7 frivolous or groundless basis. 8 And the penalty is up to $5,000, it's in the to 9 Board's discretion based on the history of the taxpayer 10 compliance and their activity in the appeals process. 11 MR. HORTON: I believe the frivolous appeal 12 penalty should apply, that the amount -- I certainly 13 would like to hear from my colleagues if they have any 14 amount in mind. 15 MS. YEE: To be consistent, $5,000. 16 MR. HORTON: Okay. Any other takers? 17 MS. YEE: For a third appeal, it's our history. 18 MS. MANDEL: Mine was around 3. 19 MR. HORTON: All right, Madam Chair, you got 20 it. 21 MS. YEE: All right. We have a motion to 22 sustain the Franchise Tax Board and impose a $5,000 23 frivolous appeal penalty. 24 I'll second that motion. 25 Discussion? 26 Objection? 27 Hearing none, that motion carries. 28 ---o0o--- 36 1 MS. YEE: Okay. 2 MS. OLSON: Our last item for the day is B15, 3 Eric Mattson. 4 ---o0o--- 5 B15 ERIC MATTSON 6 NO. 510013 7 ---o0o--- 8 MS. YEE: Okay, item B15, Eric Mattson, motion, 9 please? 10 MS. KELLY: This is also a -- this is 11 Appellant's first appeal of this nature. 12 MS. MANDEL: Of this nature? 13 MS. KELLY: Uh-huh. 14 MS. MANDEL: So, sustain the Franchise Tax 15 Board and frivolous appeal penalty's 750. 16 MS. YEE: Okay, motion by Ms. Mandel to sustain 17 the Franchise Tax Board and impose a $750 frivolous 18 appeal penalty. 19 I will second that motion. 20 Discussion? 21 Hearning none, without objection, that motion 22 carries. 23 MS. OLSON: And that concludes our business for 24 today. 25 MS. YEE: Thank you very much, Ms. Olson. 26 We are recessed until 9:30 tomorrow. 27 ---o0o--- 28 37 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 October 19, 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 pages 1 13 through 37 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: November 7, 2010 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 38