BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 450 N Street, Room 121 Sacramento, California REPORTER'S TRANSCRIPT DECEMBER 14, 2010 FINAL ACTIONS Reported by: Beverly D. Toms No. CSR 1662 1 1 2 P R E S E N T 3 4 For the Board Betty Yee of Equalization: Chair 5 Jerome E. Horton 6 Vice-Chair 7 Barbara Alby Acting Member 8 Michelle Steel 9 Member 10 Marcy Jo Mandel Appearing for John 11 Chiang, State Controller (per Government Code 12 Section 7.9) 13 Diane Olson Chief, Board 14 Proceedings Division 15 Board of Equalization Staff: David Levine 16 Tax Counsel IV 17 Amy Kelly Tax Counsel 18 Anthony Epolite 19 Tax Counsel 20 ---oOo--- 21 22 23 24 25 26 27 28 2 1 2 3 4 5 ITEM B1a, B1b and B1c 6 Sacramento, California 7 December 14, 2010 8 ---oOO--- 9 MS. YEE: I'd like to take the matters under 10 submission up for a vote. So, if you could let us know 11 the first item. 12 MS. OLSON: Okay, our first item is B1a, 13 Kingston Technology Corporation; B1b, David Sun and 14 Diana Sun; B1c, John Tu and Mary Tu. 15 MS. YEE: Okay, Members, the first item taken 16 under submission is income tax appeal B1a, Kingston 17 Technology Corporation; B1b, David Sun and Diana Sun, 18 and B1c; John Tu and Mary Tu. 19 I think at Ms. Mandel's request the Franchise 20 Tax Board was going to look at the updated evaluation 21 report that was provided. 22 Appeals, do you have a report for us? 23 MS. KELLY: Yes, FTB did so, and they've 24 indicated that they've declined to agree to the new 25 appraisal and declined to further review it. 26 MS. YEE: Okay. So, is this because they don't 27 have the resources to do so? Or what's -- 28 MS. KELLY: They did not indicate. 3 1 MS. YEE: If they were given more time, can 2 they do a deeper examination? 3 MS. KELLY: The indication was that they were 4 declining to review it -- 5 MS. YEE: Okay. 6 MS. KELLY: -- and were accepting the Board's 7 decision today, if it were to do so. 8 MS. YEE: Hmm. 9 MR. HILSON: I could address that -- 10 MR. HORTON: Yeah. 11 MR. HILSON: -- if you wish. 12 MS. YEE: Mr. Hilson -- 13 MS. MANDEL: And -- and Mr. Whitney is for 14 the -- 15 MS. YEE: Yeah. Mr. Whitney, come forward, 16 I -- I want to get clear about the parameters of what 17 the Board can -- how the Board should look at this. 18 Hang on one second. Let me just get everyone 19 seated. Come forward, please, Mr. Kim, Mr. Whitney. 20 Mr. Hilson. 21 MR. HILSON: Thank you. Essentially what 22 happened here is while I stayed with Mr. Gardner during 23 the presentation on Daniel V, Mr. Biedler and the 24 Appellants' representatives placed a conference 25 telephone call with the appraiser. And the appraiser 26 indicated, as represented by Appellants' 27 representatives, that he had in fact employed the 28 identical tech -- an identical methodology to what was 4 1 utilized with the December 1998 appraisal. 2 Having been -- having received that information 3 I spoke with Mr. Biedler, I spoke with some people back 4 in the office, and essentially we're prepared to submit 5 it, we are not going to request additional time to have 6 an independent appraisal conducted, nor are we going to 7 contest that the most recent appraisal is not as 8 represented as -- and that being entirely consistent 9 with the methodology that was employed in 1998. 10 MS. YEE: Okay. 11 MS. MANDEL: There was a lot of negatives. 12 You're not -- you're not going to contest that what they 13 said about the updated appraisal is true? 14 MR. HORTON: That means they agree. 15 MS. MANDEL: Okay. I thought -- that's what I 16 thought I -- 17 MR. HILSON: We're not stipulating to the -- 18 MS. MANDEL: They're not agreeing to the -- 19 MS. YEE: Yeah. 20 MS. MANDEL: -- appraisal of -- 21 MR. HILSON: We're not agreeing to the 22 amount -- 23 MS. MANDEL: And -- 24 MR. HILSON: -- but we're not saying that 25 there's something -- 26 MS. MANDEL: That there's something -- 27 MR. HILSON: -- wrong with it. 28 MS. MANDEL: Okay. Thank you. 5 1 All right, thanks. I understand. 2 MS. YEE: Okay. All right, Members. 3 MS. STEEL: Okay. Can you explain to me a 4 little more clearly, so you are not going to contest the 5 wrongdoing on the expert's report, but what here? 6 MR. HILSON: We're not going to agree with the revised 7 $7 million number, but we're not saying that there's 8 anything wrong with the appraisal. 9 MS. STEEL: So there's nothing's wrong with the 10 appraisal, then why you are not accepting it? 11 MR. HILSON: We don't -- it's -- we are of the 12 opinion that the sale had -- the cancellation of the 13 note has more value than the $7 million, but we're -- 14 we're not prepared to try to find an appraisal -- 15 appraiser at this late date to come in and give you a 16 different number. 17 MR. HORTON: Oh, we'll give you time. 18 MS. STEEL: Yeah. That's -- 19 MS. MANDEL: Well -- 20 MS. YEE: It's a time and resource issue. I -- 21 MS. MANDEL: I -- I mean, this -- 22 MR. HILSON: I don't know that we have the 23 resources -- 24 MS. YEE: Yeah. 25 MR. HILSON: -- to do it -- 26 MS. YEE: Right. 27 MR. HILSON: -- is -- is really what it's 28 boiling down to. 6 1 MS. YEE: Right. 2 MS. MANDEL: Right. And -- and this -- this 3 case went through the protest process and now it's on 4 appeal, and FTB was going to stand on the December '98 5 appraisal, and the taxpayer was going with nothing 6 because of the -- what they said the agreement was. 7 Taxpayer, I guess recognizing that there was 8 going to be an issue about July and whether -- what the 9 value was in July asked for an updated appraisal. 10 So, that's the evidence that we have and you're 11 willing to submit the case on that basis, right -- 12 MR. HILSON: That's correct 13 MS. MANDEL: -- is what you're saying? Okay. 14 MS. ALBY: May I make a motion? 15 MR. HORTON: Sure. 16 MS. YEE: Ms. Alby. 17 MR. HORTON: Yeah. 18 MS. YEE: Mr. Horton, and then Ms. Alby. 19 MR. HORTON: No, no. 20 MS. YEE: Okay. Ms. Alby, you have a motion? 21 MS. ALBY: I'd like to move to grant the 22 the taxpayers's petition. 23 MR. HORTON: Oh. 24 MS. MANDEL: Based on -- 25 MS. STEEL: Based -- 26 MS. YEE: Reflective of what, I guess. 27 Are you taking the new evaluation report into 28 consideration? 7 1 MS. ALBY: I believe the note, its value was 2 zero. 3 MS. YEE: Okay. The original -- 4 MS. ALBY: It is -- 5 MS. YEE: -- Appellant's position? 6 MS. ALBY: -- is evident. I mean, the note 7 should be valued according to the amount realized. It 8 was zero. 9 MS. YEE: Okay, let me dispense with the 10 motion. We have a motion by Ms. Alby to grant for the 11 Appellants. Is there a second? 12 MS. STEEL: Second. 13 MS. YEE: Second by Ms. Steel. 14 Discussion. 15 Let me make a comment. This -- I thought the 16 453A cases were difficult. This is just as difficult. 17 If our -- if what's before the Board -- the 18 options before the Board relative to the value of the 19 note is zero, 7.6 -- 20 MS. STEEL: -- 7 -- 21 MS. YEE: -- or -- or the -- was that the 22 -- 22 MS. STEEL: -- 2 million -- 23 MS. YEE: -- million as of the December '98 24 date, I don't agree that the note does not have value. 25 I also don't believe -- I think the December '98 value 26 does not reflect an appropriate decrease. I think the 27 7.6 million is actually kind of low. I'm going to go 28 back to my original question, and I know it's not -- 8 1 it's simplistic. But it is an indicator about the order 2 of magnitude of a decrease, and that is to the extent 3 that the second contingency experienced a 42 percent 4 decrease, why is it not appropriate to -- to apply that 5 to the decrease in the value of the note? 6 And I -- and I just want to -- and I get it's 7 not a -- a linear calculation, but I -- I feel like 8 that's something tangible, we can kind of put our arms 9 around, and that's kind of a starting point for me, 10 because it's something we can kind of -- kind of agree 11 with. I mean, we -- we know what that value decrease 12 was. 13 So, Mr. Whitney. 14 MR. WHITNEY: Yeah, if -- if I could comment 15 on that. I mean, it is -- it's got a surface level 16 appeal to it, that if you know the decline in the value 17 of the business, why not apply the same percentage 18 decline to the value of the note. 19 The problem is, is that under the Black-Sholes 20 Option Pricing Model, which is the very basis on which 21 this apprais -- appraisal was prepared, which I think is 22 appropriate, it's what the FTB has agreed to, it is not 23 a veneer correlation, it is an exponential correlation. 24 And I gave the example of the stock trading at 25 $100, you know, a share with a call option to purchase 26 at 105. If that stock then declined to $50, that would 27 be a 50 percent decrease. But you would not expect that 28 the option would decrease in value by 50 percent. 9 1 The -- the decrease could be 95 percent, 99 percent 2 because the chance based on the -- the volatility of 3 that particular stock that it would increase from $50 4 all the way up above $105 would be extremely remote. 5 And that's -- that's the methodology that the appraiser 6 used in updating it. It was the same formula with the 7 same volatility that's already been accepted by the FTB 8 at 12-31-98, but plugging in a different beginning 9 value. Not the 760 calculated value of the business, 10 but the actual negotiated 450 value of the business on 11 July 14th. Plugging in that value of five and a half 12 year remaining term instead of six years, you've got the 13 target value of the 1.8 billion and you've already 14 established the volatility, which has been accepted in 15 the original report, there's really only four variables. 16 And so he updated the appropriate variables. The 17 beginning value with the remaining term and under the 18 Black-Sholes that's the -- the value that you -- you 19 get. 20 MS. STEEL: Madam Chair, just -- I can just 21 talk about this, 76 -- 760 million to 450 million is 42 22 percent down. So that's the way base amount started and 23 the amount came out for $7.6 million instead of 22 24 million. Print the formula. 25 MR. HORTON: Madam Chair. 26 MS. YEE: But -- and I guess with respect to 27 this starting value of the business -- I guess what's 28 uncomfortable for me is that nowhere is the value of the 10 1 note kind of factored in as consideration, and there is 2 value in that note, and I'm just trying to figure out at 3 what point that gets picked up. 4 I mean, you've -- you've contended as your 5 original position there was no value. Franchise Tax 6 Board has determined -- or at least is of an opinion 7 that there is a value. We now have an updated valuation 8 report and I guess I'm trying to thread the needle among 9 all three of these positions, and it still doesn't hang 10 together for me in terms of why we're not including the 11 value of the note in whatever you start out with. 12 MR. WHITNEY: Yeah, the -- may I elaborate on 13 that? 14 MS. YEE: Please. 15 MR. WHITNEY: The -- the appraiser actually 16 did, as a placeholder, in -- input a $10 million assumed 17 value of the note, and he added that to the $450 million 18 purchase price of the business. 19 Maybe to take -- a half step back, our position 20 from the very beginning is you've got an arm's length 21 transaction and that that really sets the best measure 22 of what the value of the note is. It would really be 23 encumbent on the -- the FTB to say that isn't an arm's 24 length transaction with some evidence to support that -- 25 that assertion. Only then would the appraisal be 26 relevant if we did not -- if it was established that we 27 didn't have an arm's length transaction. We believe we 28 do. We haven't heard any evidence that -- that we 11 1 don't. 2 But for the sake of presentation, if -- if -- 3 if it's doubted that this is an arm's length transaction 4 we asked the appraiser to update that using the -- the 5 variables that we know have changed, five and a half 6 years, not six, and the starting point of 4 -- 450, 7 not -- not the 760. 8 MS. YEE: 760, okay. 9 MR. WHITNEY: He did add, and we discussed this 10 on the -- the conference call with the -- the appraiser, 11 he did add under that -- that model a $10 million value 12 of the -- the note, as -- as a rounded amount close to 13 the 7.6 million that was derived from the calculation. 14 So he actually did start with 460 million, that 15 is factored in -- in the appraisal that he did as of 16 July 14, 1999. 17 MS. YEE: Okay. And, Franchise Tax Board, 18 remind me again about your position with respect to the 19 arm's length transaction that -- does that make a 20 material difference? 21 MR. HILSON: We don't -- we don't think it 22 makes a material difference other than the fact that as 23 part of these negotiations that note was taken out of 24 play. 25 The taxpayers went back in holding -- already 26 having a note by which the -- BankSoft owed them $450 27 million, albeit on a contingent basis. 28 They went back in, agreed to pay -- pay $450 12 1 million to get their business back. That to me says 2 that the taxpayers had been doing their own due 3 diligence and were of the opinion that the marketplace 4 was coming back for this particular chip. 5 That being the case, that note had to have some 6 value. And because the note was taken out of play. It 7 wasn't just $450 million, give us our business back and 8 we'll -- everybody ignore the note; it was $450 million 9 and cancellation of the note. There's a benefit there. 10 MR. WHITNEY: That may be overstating things a 11 little bit. If -- if I may, Article 7 of the -- the 12 purchase agreement unwound all of the legal agreements 13 between the parties. There was a partnership agreement. 14 There was the note. There were some other contracts 15 related to stock purchase agreements relative to the 16 original transaction in 1996. 17 The point of Article 7 was to put the parties 18 back in the position that they were before the sale in 19 1996. Get the business back, you would not leave loose 20 ends. But there are a number of loose ends, and at the 21 end of the day the parties saw no value in the 22 collective cancellation of -- of these various legal 23 agreements. 24 MS. YEE: But -- okay. I guess just on the 25 face of what's required under 453B, when you have a 26 cancellation of a note, you have a disposition of the 27 installment obligation. And so there's got to be some 28 realization of a gain or a loss, yes? 13 1 MR. WHITNEY: Well, it -- it talks about a 2 disposition of a note in other than a sale or exchange. 3 And what we have I think, as the -- the FTB has agreed, 4 is a sale or exchange. 5 In the case of a sale or exchange you look at 6 what is received. We contend that in -- in an arm's 7 length transaction that defines the purchase price, we 8 received the business and we -- we paid $450 million. 9 There was nothing more received for the -- the 10 contingent note. 11 MS. YEE: Okay. I'm -- I'm going to turn to 12 Appeals. What am I missing here? I'm really having a 13 hard time with this. 14 I mean, just looking at what's required under 15 453B. 16 MR. EPOLITE: I don't know that you're 17 necessarily missing anything. What it is is a 18 determination of fair market value. So that fair market 19 value can't -- goes from zero up so that -- you know, 20 you are starting out with zero and it's a determination 21 of how much above that is the fair market value of the 22 note at the time of its cancellation. 23 MS. YEE: Okay, let me -- let me just noodle 24 over that for a bit. 25 Ms. Mandel, did you have a question? 26 MS. MANDEL: I think Mr. Horton -- 27 MS. YEE: Oh, I'm sorry, Mr. Horton, please. 28 MR. HORTON: Sure. Sure. 14 1 There's a cancellation of the note. There's a 2 gain in the entire transaction. There's an appraised -- 3 appraisal as of July 1999. Same methodology used prior 4 to in December. It seems to me that the FTB is 5 concurring that it was -- the appraisal was appropriate. 6 And there seemed to be a decline in the value of the 7 business proportionate to a decline in the value of 8 the -- appraised value of the note. 9 And so it all makes sense to me that the value 10 of the note was the appraised value as of July 1999. 11 And that should be the value. And such would be my 12 motion if we can't get past the original motion. 13 MS. YEE: Okay. Other questions, Members? 14 Discussion? 15 We do have a motion before us to grant for the 16 Appellant. Motion by Ms. Alby, second by Ms. Steel. 17 Let's call for the roll on that. 18 MS. OLSON: Madam Chair. 19 MS. YEE: No. 20 MS. OLSON: Ms. Alby. 21 MS. ALBY: Aye. 22 MS. OLSON: Ms. Steel. 23 MS. STEEL: Aye. 24 MS. OLSON: Mr. Horton. 25 MR. HORTON: No. 26 MS. OLSON: Ms. Mandel. 27 MS. MANDEL: No. 28 MS. OLSON: Motion -- 15 1 MS. MANDEL: But I'd second Mr. Horton's 2 motion. 3 MS. STEEL: What was Mr. Horton's motion? 4 MR. HORTON: All right. 5 MS. MANDEL: Using the July appraisal. 6 MS. STEEL: Okay, so it's a new appraisal then? 7 MS. MANDEL: The new -- the new -- the 8 appraisal as of the date that -- 9 MR. HORTON: Of the date of the cancellation, 10 which was -- 11 MS. MANDEL: -- that -- right. 12 MR. HORTON: -- July 1999. 13 MS. KELLY: Madam Chair -- 14 MS. YEE: Yes. 15 MS. KELLY: -- may I make a recommendation? 16 MS. YEE: Uh-huh. 17 MR. HORTON: Yes. 18 MS. KELLY: I'm sorry, I missed -- was the 19 motion to sustain FTB with modification? 20 MR. HORTON: Yes. 21 MS. KELLY: Oh, thank you. 22 MR. HORTON: To reflect the -- 23 MS. MANDEL: Yeah, but that -- that's -- 24 MS. STEEL: I thought it was -- 25 MR. HORTON: To reflect the July -- 26 MS. KELLY: Yes, yes. 27 MR. HORTON: -- 1999 appraised value. 28 MS. KELLY: I was just checking to see if it 16 1 was sustain FTB. That -- 2 MS. MANDEL: Well, it's -- 3 MS. KELLY: That wouldn't particularly 4 reflect -- 5 MS. MANDEL: I mean they're -- they're both -- 6 MS. KELLY: Their thinking must be recognized but with 7 modification. 8 MS. MANDEL: I mean, it's the same -- you could 9 state it either way, probably because the taxpayer 10 agrees you would measure 453B gain by the market value 11 of the note as against their basis. The basis is 12 agreed. The taxpayer just says if market value is zero 13 and the FTB said it was something much bigger, and if 14 the Board says that the market value of the note is this 15 July appraisal at 7 million, whatever it is -- you know, 16 you could -- you could state it as granting the petition 17 but modifying -- you know, granting the petition at 18 the -- at -- at -- or the appeal at fair market value of 19 7 point -- using a fair market value of 7.6 from the 20 gain or you could say it as modifying FTB. 21 MR. HORTON: Given -- 22 MS. MANDEL: It's the -- it's the same thing. 23 MR. HORTON: Given the testimony of FTB my 24 preference would be to sustain FTB with modifications. 25 MS. MANDEL: Okay. But it's -- it gets you to the same 26 -- 27 MR. HORTON: Same place. 28 MS. MANDEL: -- same place. 17 1 MR. HORTON: Right. 2 MS. STEEL: 7.6 million? 3 MS. MANDEL: 7.6 million as the value of the 4 note, and they would subtract the basis in the note, 5 which the parties agree to, which is a five -- you know, 6 almost $6 million figure to determine what the gain is, 7 the actual gain is. 8 MS. YEE: Okay. Mr. Horton -- 9 MS. MANDEL: Are you -- 10 MS. YEE: -- that's your motion? 11 MS. MANDEL: Are you follow -- 12 MR. HORTON: Same -- no, I haven't changed 13 anything. 14 MS. MANDEL: I just want to make sure she's 15 following -- 16 MR. HORTON: Oh. 17 MS. MANDEL: -- the -- 18 MS. STEEL: Okay. So, sustain -- 19 MR. HORTON: The end results is the same. 20 MS. STEEL: Okay. So what's the -- 21 MR. HORTON: There is a difference, but not to 22 be considered, either. 23 MS. YEE: Okay. Mr. Horton, you want to state 24 the motion so that Ms. Steel can -- 25 MR. HORTON: I would move to sustain the FTB 26 with modifications to reflect the July 1999 appraised 27 value. 28 MS. MANDEL: Second. 18 1 MS. YEE: Okay. I have a motion by Mr. Horton, 2 second by Ms. Mandel, to sustain the Franchise Tax 3 Board, with modification to reflect the July 1999 4 appraised value. 5 Please call the -- 6 MS. STEEL: Okay. You know what, let me ask 7 you another thing. So what is exactly July 1999 value? 8 MS. KELLY: I believe it is 7.6 million. 9 MS. YEE: 7.6. 10 MS. STEEL: Okay. Thank you. 11 MS. YEE: Uh-huh. 12 Okay, please call the roll. 13 MS. OLSON: Madam Chair. 14 MS. YEE: No. 15 MS. OLSON: Ms. Alby. 16 MS. ALBY: Happy Holidays. No. 17 MS. OLSON: Ms. Steel. 18 MS. STEEL: Aye. 19 MS. OLSON: Mr. Horton. 20 MR. HORTON: Aye. 21 MS. OLSON: Ms. Mandel. 22 MS. MANDEL: Aye. 23 MS. OLSON: Motion carries. 24 MS. YEE: Okay, that motion carries. Thank 25 you. 26 Thank you very much. 27 MR. HILSON: Thank you. 28 MS. YEE: Okay. Next item, please. 19 1 ---oOo--- 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 20 1 ITEM B2. 2 MS. OLSON: Next item is B2, Daniel V, 3 Incorporated. 4 MS. YEE: Okay, Item B2, Daniel V, 5 Incorporated. May I have a motion, please. 6 MS. STEEL: I want to make a motion. 7 MS. YEE: Okay. 8 MS. STEEL: To -- you know, we been hearing 9 this from both sides, Mr. Lane and Mr. Hehn, who have 10 testified under oath and the decisions on corporation 11 matters were always made in Nevada. 12 There's some information came from California, 13 most of them were made in Nevada. That there is a 14 complete lack of evidence of control from California and 15 no instructions or coordination took place from 16 California. 17 Third, it is presumed that intangibles have a 18 tax situs in the State of incorporation of its owner, 19 which is Nevada in this case. And the FTB has to 20 overcome what this burden of proof, which they have 21 failed to do so. So I grant the petition. 22 MS. YEE: Okay, we have a motion by Ms. Steel 23 to grant the petition. Is there a second? 24 MS. ALBY: Second. 25 MS. YEE: Okay. Second by Ms. Alby. 26 Discussion further? 27 Hearing none, please call the roll. 28 MS. OLSON: Madam Chair. 21 1 MS. YEE: No. 2 MS. OLSON: Ms. Alby. 3 MS. ALBY: Aye. 4 MS. OLSON: Ms. Steel. 5 MS. STEEL: Aye. 6 MS. OLSON: Mr. Horton? 7 MR. HORTON: No. 8 MS. OLSON: Ms. Mandel. 9 MS. MANDEL: No. 10 MS. OLSON: Motion fails. 11 MS. YEE: Okay. That motion fails. May I have 12 another motion, please. 13 I'll move to sustain the Franchise Tax Board. 14 Is there a second? 15 Okay, that motion dies for lack of a second. 16 Don't all jump in at once now. 17 MR. HORTON: I'll second it for discussion 18 purposes. 19 MS. YEE: Okay. 20 MR. HORTON: Let me just share my -- 21 MS. YEE: Yes. 22 MR. HORTON: -- views here, Madam Chair. 23 Based on the initial evidence that was presented prior 24 to the hearing, I clearly believe that the matter was 25 before us to consider. In light of the information that 26 was provided by the Department and the testimony of the 27 taxpayer it caused me to pause somewhat. 28 And so it's my belief that there was really no 22 1 compelling new evidence that would cause me to overturn 2 the position of a previous body at this point. And that 3 the Board's prior decision on the issue of commercial 4 domicile and accuracy-related penalty and late filing is 5 controlled by Sky Williams. And therefore I would move 6 to sustain -- support the -- second the Chair. 7 MS. YEE: Okay. Thank you, Mr. Horton. Other 8 discussion? 9 Okay, hearing none, please call the roll. 10 MS. OLSON: Madam Chair. 11 MS. YEE: Aye. 12 MS. OLSON: Ms. Alby. 13 MS. ALBY: No. 14 MS. OLSON: Ms. Steel. 15 MS. STEEL: No. 16 MS. OLSON: Mr. Horton. 17 MR. HORTON: Aye. 18 MS. OLSON: Ms. Mandel. 19 MS. MANDEL: Aye. 20 MS. OLSON: Motion carries. 21 MS. YEE: Okay. 22 Our next item is item B3, Douglas Gail Hufnagel 23 and Robyn Hufnagel. May I have a motion, please? 24 MS. OLSON: Ms. -- Ms. Kelly has -- 25 MS. YEE: Oh, I'm sorry, Ms. Kelly, yes. 26 MS. KELLY: I wanted to confirm that sustain 27 FTB included the amnesty penalty issue. 28 MS. YEE: Oh, on the prior -- 23 1 MS. KELLY: On Daniel V. 2 MS. YEE: Yeah, it was part of my motion, yes. 3 MS. KELLY: Okay, thank you. 4 MS. YEE: Uh-huh. 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 24 1 ITEM B3. 2 MS. OLSON: Okay, our next item is B3, Douglas 3 Gail Hufnagel and Robyn Hufnagel. 4 MS. YEE: Okay. May I have a motion, please. 5 MS. ALBY: Sustain -- 6 MR. HORTON: FTB. 7 MS. ALBY: -- FTB. But they did concede 8 something, so -- 9 MS. YEE: '96 and '97 -- 10 MS. ALBY: Got it. 11 MS. YEE: -- the refunds were allowed -- 12 MS. ALBY: Yeah. 13 MS. YEE: -- based on the Federal change. 14 Okay? 15 MS. ALBY: Yes. 16 MS. YEE: All right. Motion by Ms. Alby, 17 second by Mr. Horton to sustain the Franchise Tax Board, 18 which reflects allowance of the refunds from the '96 and 19 '97 years. 20 Discussion? Objection? 21 Hearing none, such will be the order. 22 ---oOo--- 23 24 25 26 27 28 25 1 ITEMB4 2 MS. YEE: Our next item is B4, James Vaughn. 3 May I have a motion, please? 4 MR. HORTON: Move to sustain FTB. 5 MS. YEE: Okay, motion by Mr. Horton to sustain 6 the Franchise Tax Board. 7 Is there a second? 8 MS. ALBY: Second. 9 MS. YEE: Second by Ms. Alby. 10 MS. ALBY: Isn't there an adjustment for 2005 11 here? 12 MS. KELLY: Yes, there is. FTB's made the 13 modification -- 14 MS. ALBY: Yes. 15 MS. KELLY: -- to allow the standard deduction. 16 MS. YEE: Standard -- yes. Okay, that's 17 incorporated in the motion then. 18 Okay. Motion by Mr. Horton, second by Ms. 19 Alby. 20 Without objection, that motion carries. 21 Next item? 22 ---oOo--- 23 24 25 26 27 28 26 1 ITEMC1 2 MS. OLSON: Next one is C1, United Spas 3 Manufacturing, Incorporated. 4 MS. YEE: Okay. Item C1, United Spas 5 Manufacturing, Incorporated. Is there a motion? 6 MR. HORTON: Move to adopt staff 7 recommendation. 8 MS. YEE: Motion by Mr. Horton -- 9 MS. ALBY: Second. 10 MS. YEE: -- to adopt the staff recommendation. 11 Seconded by Ms. Alby. 12 Discussion? 13 MS. STEEL: Which item? 14 MS. YEE: Item C1, United Spas Manufacturing. 15 Okay. Hearing none -- objection? Hearing no 16 objection, the motion carries. And then, Mr. Levine, 17 you'll be sure to have staff work with the taxpayers 18 with respect to options for them to -- 19 MR. LEVINE: Yes. 20 MS. YEE: -- satisfy their liability? Okay, 21 thank you. 22 MR. LEVINE: You want to offer them a payment 23 plan and -- 24 MS. YEE: Right. 25 MR. HORTON: Yes. 26 MS. YEE: Anything else available to use to 27 their benefit. 28 ---oOo--- 27 1 ITEM C2 2 MS. YEE: Okay. Next item, C2, Fernando Olvera 3 Barragan and Claudia Olvera. May I have a motion, 4 please. 5 MR. HORTON: Move to adopt staff 6 recommendations. 7 MS. YEE: Motion by Mr. Horton to adopt the 8 staff recommendation. Is there a second? 9 Chair will second that motion. 10 Discussion? 11 Objection? Hearing none, that motion carries. 12 Is that the end of our items under submission? 13 MS. OLSON: That's correct. 14 ---oOo--- 15 16 17 18 19 20 21 22 23 24 25 26 27 28 28 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 December 14, 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 27 13 pages constitute a complete and accurate transcription 14 of the shorthand writing. 15 16 Dated: December 21, 2010. 17 18 19 ____________________________ 20 BEVERLY D. TOMS 21 Hearing Reporter 22 23 24 25 26 27 28 29