1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 NOVEMBER 18, 2010 10 11 12 13 14 15 FINAL ACTIONS 16 17 18 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 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 13 Board Proceedings Division 14 For Board of David Levine 15 Equalization Staff: Staff Counsel 16 17 ---oOo--- 18 19 20 21 22 23 24 25 26 27 28 2 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 NOVEMBER 18, 2010 4 ---o0o--- 5 MS. OLSON: Our next items are those items that 6 were taken under submission this morning. 7 MS. YEE: Okay. Go back to those then. Okay. 8 MS. OLSON: Our first one is B4, Frank J. Vigil. 9 MS. YEE: Okay. First item, Members, we took under 10 submission is item B4, Frank J. Vigil. 11 I'm going to ask Appeals to comment on this. We 12 had some discrepancy with respect to the completeness of 13 the exhibits that were provided to our offices. Let me 14 have Appeals comment about that. 15 MS. KELLY: Well, under the Rules for Tax Appeals, 16 the Board proceedings is required to distribute all of the 17 documentary evidence to the Board Members. And the Board 18 is also, in its discretion, can put the case over at the 19 completion of the oral hearing. That can be done to the 20 same meeting or to a subsequent meeting or to a later 21 meeting. 22 MS. YEE: Okay. Members, I guess my desire is to 23 do that. There apparently were quite a few missing 24 exhibits that were not distributed to our offices. And I 25 for one would like to take the opportunity to look at them, 26 kind of as a package of evidence that's been submitted. 27 And, I guess, let me just check with Ms. Olson in 28 terms of Board proceedings, what should we expect from this 3 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 point on in terms of when we can get those and in what 2 form? 3 MS. OLSON: You'll have them tomorrow morning, to 4 your offices. And I discussed it with staff, and there 5 will be a review of the Board meeting materials -- 6 MS. YEE: Okay. 7 MS. OLSON: -- from this time forward. 8 MS. YEE: Okay. I guess what I would suggest, 9 also, because this wasn't the case, but if it should 10 happen, that what our offices receive electronically is 11 inconsistent with hardcopies that we receive, that there be 12 some notation of that. I can understand that sometimes 13 things are voluminous and we're trying to meet a time -- 14 some time sensitivity. But, yeah, I just feel like in this 15 matter I would like to put the matter over so we have an 16 opportunity to review the exhibits. 17 Other thoughts, Members? Ms. Mandel. 18 MS. MANDEL: Yeah, I realized when I had asked for 19 a supplemental second package that I was missing exhibits 20 in it. And so I -- there are ones that were referred to 21 that I would like to see. And since I don't have them all 22 in this package, I would not be -- I'd rather -- I would 23 not be voting today without making sure that I had the full 24 package. 25 MS. YEE: Okay. 26 MR. HORTON: I'll second that. 27 MS. MANDEL: So putting it over works for me. 28 MS. YEE: Okay. So why don't we do this: Why 4 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 don't we put this over on the December nonappearance 2 adjudicatory calendar. And that should give us sufficient 3 time to review the remaining evidence. Okay. Very well. 4 So do you need a formal motion on that? 5 MS. OLSON: I didn't. 6 MS. YEE: Okay. Motion by Yee, second by Horton. 7 Without objection, that will be the order. Thank you. 8 MS. OLSON: Thank you. 9 MS. YEE: Okay. Next item. 10 MS. OLSON: Our next item is C6, John Ray James 11 Ford. 12 MS. YEE: Okay. Item C6, John Ray James Ford. May 13 I have a motion, please? 14 MR. LEVINE: May I interject? 15 MS. YEE: Oh, Mr. Levine, please. 16 MR. LEVINE: This is the one that you -- we had the 17 request for relief. 18 MS. YEE: Yes. 19 MR. LEVINE: What we have is -- I think he may have 20 been a little confused. He was given two forms. One is 21 entitled Request for Relief of Amnesty Penalty and one is 22 just the general. 23 He's filled out one for amnesty penalty. It is 24 signed, so -- and he's asking, basically, to have it 25 reduced to the 97,000. And he's relying on the seizure of 26 the records that he couldn't file taxes. 27 As far as the amnesty penalty, while this does not 28 address failure to comply with the amnesty program at all, 5 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 it is a request for relief that we can deem to cover that. 2 And I think it's reasonable to assume that in 2005, when 3 the amnesty program was in effect, this corporation, not 4 him but this corporation, was defunct and had no assets. 5 So on that basis, I'd recommend relief of the 6 amnesty interest penalty, which is the only amnesty penalty 7 involved. I don't think it's sufficient for the rest. 8 There was a failure to file penalty, that's arguable. 9 There's a failure to file penalty for the last quarter of 10 this, the third quarter. But the business ended -- it's a 11 little confusing. The business apparently ended at the end 12 of August, and the property, even if everything was seized, 13 it didn't happen until sometime after October 1. 14 Technically the return for that quarter wasn't due 15 until October 31. But once it's out of business August 31, 16 it's my opinion that he had time to file a return if he was 17 going to file a return. So I don't think we'd recommend 18 relief of that. And it doesn't explain the late payment on 19 the prior quarter. 20 MS. YEE: Okay. 21 MR. LEVINE: The amnesty penalty is the biggest one 22 though -- 23 MS. YEE: Yes. 24 MR. LEVINE: -- by a little bit, and we recommended 25 that be relieved. 26 MS. YEE: All right. 27 MR. LEVINE: Subject to the normal conditions, 28 which might not be conducive to relief, but that the 6 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 payment be made within 30 days of notice or a 13-month 2 successful payment plan. 3 MS. STEEL: I have a question. 4 MS. YEE: Ms. Steel. 5 MS. STEEL: So, Mr. Levine, then do you talking 6 about the last quarter that he didn't do the tax return. 7 But if he finds the documents of the bank seized on Niles 8 Nissan, asked it before the due date of third quarter of 9 2001, so he didn't have any document at that point because 10 everything was seized, then he's going to be relieved from 11 that quarter? 12 MR. LEVINE: That -- you could decide to relieve it 13 based on this. Realistically, I don't think he was going 14 to file returns. He had -- the business closed in August, 15 and the one thing that we know is that the seizure didn't 16 occur before October 1 because that was the date they asked 17 for a court hearing, and I'm guessing it was maybe sometime 18 in the next couple weeks. It was -- so sometime probably 19 before -- it's just a guess -- probably sometime before the 20 end of October they got a court order, if they got it, and 21 then they, I assume, promptly seized. So maybe they did 22 before the end of October. 23 MS. STEEL: But due date is October 31st for third 24 quarter, so -- 25 MR. LEVINE: Right. But was he really going to 26 file a return anyway? That was my concern, that he had 27 plenty of time before any seizure, to file a return. 28 MS. STEEL: Is it -- when they seize something, 7 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 they give the taxpayer notice beforehand that we are coming 2 in certain date and we're going to seize everything? 3 Usually they just walk in, or they just take the documents? 4 I just don't know those procedures here. 5 MR. LEVINE: I don't know why they would take the 6 documents. I don't understand that, but I haven't seen all 7 the court documents. The property, yes, because this was 8 security. So they were seizing the security, and maybe 9 they had the right to the bank accounts, too. But I don't 10 know why they would have the right to the documents. 11 Doesn't mean they wouldn't, but I don't know why they 12 would. 13 MS. STEEL: Can I make motion that, because 14 taxpayer said that he's going to try to find those 15 documents, and at least third quarter tax due is on October 16 31st. 17 So can I make motion to adopt the staff 18 recommendations, but we give taxpayer one month to come up 19 with those documents, then we going to adjust that amount, 20 plus what you just suggested about the relief of amnesty 21 penalty interest. Is that okay? I don't know how -- 22 MS. YEE: You want to do that instead of just 23 outright granting more time for him to come back with 24 documents? 25 MS. STEEL: He was not really sure because there is 26 12 boxes. So we just give him the timeline that if you 27 cannot find them within one month, then we're going to go 28 for staff recommendation. 8 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 MS. YEE: Mr. Levine, that motion? 2 MR. LEVINE: I'm just a little confused. Are you 3 saying if he can show that the documents were seized before 4 the end of the month -- 5 MS. STEEL: Right. 6 MR. LEVINE: -- then he would get relief of the 7 penalties for that quarter. 8 MS. STEEL: Only for that quarter, yeah. 9 MS. YEE: All right. 10 MS. STEEL: Okay. 11 MR. LEVINE: But just the documents. 12 MS. STEEL: Right. 13 MR. LEVINE: So he would have to show that he 14 actually lost control of the documents before the end of 15 the month. 16 MS. STEEL: Right. 17 MR. LEVINE: Okay. We can -- if he comes up with 18 it, we can certainly figure that out. 19 MS. YEE: Okay. All right. We have a motion by 20 Ms. Steel. Is there a second? 21 MS. ALBY: Second. 22 MS. YEE: Second by Ms. Alby. 23 Further discussion? 24 MS. MANDEL: I'm sorry. Motion's on the last 25 quarter? 26 MS. STEEL: Right. 27 MS. YEE: Yes. 28 MS. STEEL: Third quarter. 9 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 MS. YEE: Third quarter of '01. 2 Okay. Objection? Hearing none, that motion 3 carries. 4 MS. MANDEL: We'll get the usual OIC? 5 MS. YEE: Yes. 6 MS. STEEL: Compromise, too. 7 MS. YEE: Staff hereby notified the Board wishes 8 offer in compromise information be provided to petitioner. 9 Thank you. 10 MS. OLSON: Our next item is D1, Mark S. Harris. 11 MS. YEE: Okay. Item D1, Mark S. Harris. May I 12 have a motion, please? 13 I'll move the staff recommendation. Is there a 14 second? 15 MS. MANDEL: Um, yeah, I'll second. 16 MS. YEE: Second by Ms. Mandel. 17 Discussion? 18 MS. STEEL: Just question to Mr. Levine that, you 19 know, when they notified the Board of Equalization that 20 he's selling -- he was selling cigar at that time, do we 21 have a responsibility to let taxpayer know that you have to 22 get distributor's license? 23 I mean, something that I think we should help 24 taxpayers because a lot of taxpayers, they don't have a 25 clue that they really need another license at that point. 26 But he made it very clear that he was selling cigar. 27 MR. LEVINE: I think this is the same as with all 28 of our tax programs. Whether a legal duty, perhaps not. 10 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 But it's the way we've always done business, and what we 2 try to do is notify the taxpayers of their requirement. 3 Sometimes we do a great job, and sometimes we learn as we 4 go. Underground storage tank is a big ticket example of 5 problems we've had. 6 From what I've seen with this program, the 7 Department did pretty well notifying people. It's hard -- 8 we just don't have the manpower to call up each person. 9 I think -- I don't doubt his honesty at all, but I 10 think that he needed to specifically be told, probably, 11 this is what you need. And he wasn't. 12 It's unfortunate. I really think that we had this 13 information of House of Oxfords, but not everyone would 14 pick up that they're not a registered -- especially if it 15 was -- if he gave this information at the time he got the 16 seller's permit application, 2001, I don't think the staff 17 was reviewing every file to see if there may have been some 18 fact to help advise taxpayers. I just don't think there 19 was the manpower. 20 So it would have been good if we told him. I think 21 that knowledgeable people probably know the House of 22 Oxford, certainly in the excise tax department, is someone 23 who's not registered for -- to collect our tax. 24 If you hold the Board up to the standard of telling 25 everyone everything, we'd have a big problem. That's why 26 we have the request for relief -- I mean, the relief 27 provisions for written requests and written response. 28 MS. STEEL: If we can, I mean, then these taxpayers 11 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 don't get into trouble like this. 2 MS. ALBY: Madam Chair. 3 MS. YEE: Yes, Ms. Alby. 4 MS. ALBY: I actually think this man deserves a 5 little bit better consideration from us. I mean, it is -- 6 he is a very, very sympathetic witness on his own behalf. 7 He's a law-abiding guy; it's very obvious. 8 On one hand the Department said that they thought 9 he was operating a flower shop, so he didn't need notice. 10 And then on the other side they said they knew he was 11 selling tobacco. I mean, we can't have it both ways. 12 At the very minimum, I really believe we should 13 relieve the interest in penalties. 14 MS. MANDEL: The -- I had -- you know, I tried to 15 ask him about the finality penalty on the one, but he 16 wouldn't have -- that one didn't -- I had some issues with 17 that one, didn't seem to go too well. 18 The failure to get a distributor's license, I 19 guess, is one penalty. And then the -- but the other one 20 that I was looking at was the failure to file on the 21 estate -- on the estate, I'm sorry, excise tax. And it 22 looks like for most of the period, the failure to file 23 penalty is being recommended relief until after September 24 '05. So that's October '05 to April '06 that the failure 25 to file is still on; is that right, Mr. Levine? 26 MR. LEVINE: That's correct. 27 MR. HORTON: Madam Chair. 28 MS. YEE: Yes. 12 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 MR. HORTON: Mr. Levine, question. It was hard to 2 determine when this information was actually received, the 3 information about where he alleged that he provided a 4 written statement of the activity of his business, whether 5 it occurred in 2001, whether it occurred in 2004 when he 6 went in to take out his permit to sell cigarettes. And so 7 it was a little difficult trying to assess when it actually 8 occurred. 9 Now, given that, if in fact a taxpayer comes in to 10 the Board of Equalization and in the interview process 11 submits to the Board a document that provides the Board of 12 Equalization a description of the type of business that 13 they are in and the activity of that business, in this case 14 a business plan, and if in fact the Board of Equalization 15 is aware, is made aware and then provides that taxpayer the 16 wrong permit or not sufficient -- not the -- I don't want 17 to say -- it's difficult using the word "wrong" -- but does 18 not provide the taxpayer with the appropriate permits in 19 order to -- in order to do business in the State of 20 California as he has communicated that he's doing business 21 via the written document, the business plan or via 22 discussion, and we provide him some advice pursuant to 23 "here's how you do it", and we actually do it for him, is 24 there -- is that enough of a grounds to provide relief for 25 erroneous advice, in reliance on the advice provided by a 26 representative of the Board of Equalization? 27 MR. LEVINE: We haven't gone that far in the 28 past. 13 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 MR. HORTON: Okay. 2 MS. YEE: Okay. Other comments, Members, on this? 3 All right. 4 MS. ALBY: I -- 5 MS. YEE: Ms. Alby. 6 MS. ALBY: I have just a follow-up with Mr. Levine. 7 MS. YEE: Yes. 8 MS. ALBY: We haven't gone that far in the past, 9 but would you prohibit -- are we prohibited from making 10 that choice? 11 MR. LEVINE: It's all -- just a little background. 12 We also didn't allow prior audit advice. Mr. Sherman would 13 always say, you mean you've got away with the tax for four 14 years, and now you want it some more? But we did change 15 the record, the regulation to accept prior audit advice as 16 sufficient, but there was a -- a written request. 17 MS. MANDEL: The theory of that was that they were 18 looking at the taxpayer's books and records. 19 MR. LEVINE: That's right. We would actually look 20 at the books and records. We would have to -- my point 21 about that is, at the time we'd said maybe that's a little 22 bit of a stretch, but there's a basis for it. 23 Here, there is no -- well, again, it's another 24 step. I think -- I'd say if you wanted to go that route, 25 my recommendation would be it probably should be in the 26 regulation, just like we added audit advice in the 27 regulation. 28 MS. YEE: Okay. Thank you, Ms. Alby. 14 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 We have a motion before us to adopt the staff 2 recommendation. Please call the roll. 3 MS. OLSON: Madam Chair. 4 MS. YEE: Aye. 5 MS. OLSON: Ms. Alby. 6 MS. ALBY: No. 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: Thank you. Next item, please. 15 MS. OLSON: Our next item is closed session. 16 MS. YEE: Okay members let us convene in closed 17 session. 18 (The matter concluded at 12:50 p.m.) 19 ---oOo--- 20 21 22 23 24 25 26 27 28 15 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, KATHLEEN SKIDGEL, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 November 18, 2010 I recorded verbatim, in shorthand, to the 10 best of my ability, the proceedings in the above-entitled 11 hearing; that I transcribed the shorthand writing into 12 typewriting; and that the preceding pages 1 through 15 13 constitute a complete and accurate transcription of the 14 shorthand writing. 15 16 Dated: December 6, 2010 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 16 TOWN & COUNTRY DEPOSITION SERVICE (530) 642-0333