1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 FEBRUARY 22, 2011 9 SPECIAL PRESENTATION 10 REPORT FROM GEOFFREY WAY 11 CHIEF COUNSEL, FRANCHISE TAX BOARD 12 13 14 15 16 17 18 19 20 21 Reported by: Juli Price Jackson 22 No. CSR 5214 23 24 25 26 27 28 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 5 Michelle Steel Vice-Chairwoman 6 7 Betty T. Yee Member 8 9 George Runner Member 10 11 Marcy Jo Mandel Appearing for John 12 Chiang, State Controller (per 13 Government Code Section 7.9) 14 15 Diane G. Olson Chief, Board 16 Proceedings Division 17 18 19 ---oOo--- 20 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 FEBRUARY 22, 2011 4 ---oOo--- 5 MR. HORTON: Members, let us convene the Board 6 of Equalization meeting. 7 Ms. Olson, what is our first matter? 8 MS. OLSON: Our first matter today is a special 9 presentation from Mr. Geoffrey Way, Chief Counsel of the 10 Franchise Tax Board. 11 MR. HORTON: Welcome, Mr. Way. 12 MR. WAY: Good morning, Chair Horton and 13 Members. I'm Geoff Way, I'm Chief Counsel from the 14 Franchise Tax Board. 15 My presentation this morning is focused on our 16 appeal and protest inventory. It's designed to give you 17 kind of the flavor of what we have in our -- in our 18 inventory to help you with planning purposes for what 19 you might see on your -- see in your appeal inventory. 20 So, I'm just briefly going to go to page 1 of 21 the handout that I provided. And, again, this is a road 22 map through all of our assessments. I think you can see 23 from the numbers here that the bulk of our assessments 24 really come through our filing enforcement program, 25 which are individuals that we discover who have not 26 filed returns. 27 MS. YEE: Mr. Way, I'm sorry, Mr. Chairman, we 28 don't have the handout quite yet. 3 1 MS. MANDEL: Oh, it was in the Board meeting 2 materials. 3 MR. RUNNER: The caseload summary? 4 MR. WAY: Correct, it's the caseload summary. 5 MS. YEE: Okay, all right. 6 MR. WAY: Okay. 7 MS. YEE: There's something being handed out, I 8 wanted to be sure it was the same. 9 MR. HORTON: Okay. 10 MR. WAY: Okay. So, I'm at page 1 -- 11 MR. HORTON: There it is. 12 MR. WAY: -- of that summary. 13 The very first item is our Filing Enforcement 14 Section. Those are for individuals that we detect who 15 have not filed returns. Those NPAs would be provisional 16 NPAs based upon the information that we have. 17 But I think if you look at the bottom, there's 18 a million NPAs that we issue a year. You know, 19 approximately 950,000 of those either come through our 20 automated audit program or our Filing Enforcement 21 Section. And those are really just picking up 22 information and cross checking on our computers for 23 individuals who have income and sourced to California 24 but have not filed returns. 25 So, the bulk of our NPAs are really NPAs where 26 we've never had any contact at all with the taxpayers. 27 I think in the middle of this is where you see 28 our Audit Division. There's about 4,000 NPAs a year 4 1 through our Audit division. Those, historically, are 2 really your most difficult appeals that come through 3 those types of audits. 4 So, if you look, statistically, yes, we do have 5 a million NPAs. Approximately 18,000 of those end up in 6 protest status with us. 7 And then last year 776 ended up being appealed 8 to you at the B of E. So, we -- our system is pretty 9 efficient at going through disputes before they get to 10 you. We resolve the bulk of these before that ever 11 happens. 12 But as far the flavor goes, I think you -- it's 13 helpful to see the magnitude of our actual assessments. 14 On the next page you can see appeals 15 acknowledged by calendar year. We had 776 appeals 16 acknowledged for last year, 2010. That's down from 900 17 in 2009. I think the 2007 and 2009 years were kind of 18 indicative of around 900 or 950 appeals. 19 When the HRA program was suspended, the number 20 OF appeals dropped off. So, I think, for your planning 21 purposes, probably around 750, 850 are the total number 22 of appeals kind of that we expect going forward. It's 23 not dramatically different than it was before HRA was 24 there, but it's still a small drop, I think, in your 25 appeals inventory that you can expect through the next 26 few years. 27 The next page is our docketed protests. And, 28 you know, again I apologize for this terminology, we 5 1 probably should say that these are our protests handed 2 by Legal. Docketed protest sounds like they're some 3 ship that's in dock or something like that. 4 But you can see from our numbers, our protest 5 inventory has risen steadily over the last three years. 6 We currently have about 455 protests pending in Legal, 7 which is up from prior years. 8 I have about 68 protest that are currently 9 deferred status, mainly through litigation. But it is 10 interesting, 199 of these protests are tax shelter 11 protests. The tax shelter protests take substantially 12 longer to work than our other protests. So, they 13 will -- they will stretch out beyond the 24 month period 14 because of the factual -- really, the evidentiary basis 15 that has to be completed for these protests in order for 16 us to make a determination. 17 And then in addition with a noneconomic 18 substance penalty, the NES penalty, that the Chief 19 Counsel has the authority to reduce or review, almost 20 all of these protests have a NES involved. So, we will 21 go through and work the protest first. 22 Once the protest is completed, they'll come to 23 my desk for a Chief Counsel determination on the NES. 24 So, it does take longer to protest this group of 25 inventory. 26 I am going to go over a legislative -- a 27 legislative program that may impact these protests a 28 little bit later, but you just -- you need to know that 6 1 our protest inventory has steadily increased, which may 2 cause an increase in your appeals through the docketed 3 protests because those are our most complicated 4 protests. 5 The next page is our undocketed protests. 6 These are the -- kind of the routine ones that audit 7 handles. 8 As you can see by this chart (indicating), they 9 have remained constant, really, through the past four or 10 five years. 11 And I don't think there is any -- anything from 12 those trends that's going to impact your workload 13 substantially. 14 And then on page we just showed you our 15 settlement program. And, again, for the last four years 16 we've been settling the same amount of cases coming out 17 of our settlement program. 18 We do find that's an efficient way to resolve 19 some of the more complicated cases. But, again, the 20 settlement numbers have remained pretty constant. 21 We settle about 72 percent of our cases that 22 come in to our settlement program, for your planning 23 purposes. 24 The next page is simply a numbers chart. So, 25 I'm going to highlight some issues, substantive issues, 26 that we have in the Department that may impact again 27 your appeal workload. 28 The Treasury function cases, these are for 7 1 including Treasury activity in the sales factor. And, 2 again, as a result of the Microsoft and General Motors 3 decisions, we had California Supreme Court clarification 4 on these issues. In 2009 we ran an initiative in the 5 Department for our appeals with Treasury function 6 issues. There were -- you had 31 appeals pending at 7 that time with the Treasury function issue. And we had 8 a resolution program and resolved 21 of those. These, 9 again, are very factually specific cases. The bulk of 10 the appeals were able to be resolved this way. 11 Since that was successful last year, we 12 extended it to cases in protest or audit. We had 46 13 cases and 31 of those participated in the program. So, 14 we are pleased with the results there. I think it makes 15 for a much more efficient calendar for you and it's a 16 much more efficient resolution for taxpayers. 17 Tax shelter cases, you currently only have 11 18 pending appeals, but again with 199 protests, the 19 potential is there for a large number of shelter cases. 20 We have about an additional 100 cases in audit. 21 We are pleased to see that shelter activity 22 really is declining on the outside. So, I think this is 23 an inventory that's somewhat fixed. It will not be 24 increasing every year. And, so far, we've had a very 25 good success record in litigation with your Board on 26 these cases. 27 I think the good news for us is that there is a 28 potential for another tax shelter resolution program at 8 1 the legislature in the current Governor's budget. 2 This -- there was a bill last year in print, it was 3 AB 2498 that would have run a second -- we call it a 4 VCI, the voluntary compliance initiative. That bill 5 would have allowed you to pay tax and interest and no 6 penalties to resolve your shelter. 7 There was some resistance with the 8 administration of that bill going through. And it did 9 not pass. The same provision is in the Governor's 10 budget this year. We understand that the administration 11 is in support of this. 12 If this does go through, this will not resolve 13 all of our shelters, some people do believe they are 14 right, but we've had a number of individuals say, "If we 15 can just pay tax and interest and file an amended 16 return, we would be done." 17 I would anticipate that more than 50 percent of 18 our current shelter workload would get resolved through 19 this program. It would bring in a substantial amount of 20 money quickly to the State. And I think it could be a 21 win-win for everybody. 22 But if -- if that does go through, I think you 23 will see a dramatic reduction in shelter cases that may 24 come to you. 25 The VCI interest suspension cases, these are 26 left over from our first Voluntary Compliance 27 Initiative. You currently have about 50 appeals pending 28 on this issue. There are a number of taxpayers who 9 1 claimed that whether they filed VCI Option 1, which is 2 you pay your tax and interest and you forego all of your 3 appeal rights or VC Option 2, where you preserve some 4 appeal rights. They claim that they could still receive 5 interest suspension as a result of those decisions. 6 We do have a court decision. The Appellate 7 Court decision in Du and Shimmon that, at least for VCI 8 Option 1, taxpayers -- it's clear they do not have 9 appeal rights. I think that will resolve a good portion 10 of your inven4tory. 11 The VCI Option 2 case was remanded to the trial 12 court. So, that's still an issue. But I think that 13 will clear your calendar quite a bit. 14 We have a lot of R & D activity. We have no 15 program for trying to resolve a bulk of R & D cases 16 because they're all factually specific. 17 You have 50 pending appeals. They're difficult 18 appeals. Your two most recent ones we have 30-30-30 19 briefing on those. 20 I think the reality is you're going to have a 21 lot of R & D cases in the future. We have about 275 22 cases in audit. There's another 50 cases in protest. 23 It's just going to be part of the -- part of the 24 inventory that's going to be there for a number of 25 years. 26 We really haven't increased our audit activity 27 in the area, per se. The feds increased their audit 28 activity. So, we get RARs from the feds. 10 1 And we've just been spending a little more time 2 trying to understand the area. And I think we've 3 applied that to some of the audit cases we've had, which 4 have resulted in increased NPAs. But you will see more 5 R & D cases. 6 And then, finally, the EZ credit cases, there 7 are 48 pending appeals. We have another 18 in protest. 8 But we have 250 cases in audit. So, again, it is a 9 large audit activity for us. 10 We do feel that with the vouchering regulations 11 that have been adopted that a lot of the vouchering 12 issues have been cured in the State. 13 I think -- I think you'll be seeing other EZ 14 issues outside of vouchering. And there is -- there is 15 a Governor's proposal to suspend the EZ credit, 16 including carryovers, which, obviously, would 17 dramatically decrease this workload. None of us know 18 where that's going to go, but you will have a 19 substantial number of EZ cases that are there in the 20 inventory for the years to come. 21 We have worked at trying to settle these. 22 They're very factually specific. We have had some 23 success in settling them, but some of these cases will 24 see their way to you. 25 And then the last page, I just -- I included a 26 number of trial court cases and Appellate decisions that 27 we've had in the past year that affirmed the action of 28 the B of E. 11 1 Sometimes -- I think sometimes people have 2 criticized the B of E in some of their decisions. I 3 think it's just good to see that, "Here's the series of 4 cases last year that affirmed or are consistent with the 5 decisions you made on these cases." 6 The last case did not go to -- actually go to 7 hearing, it was withdrawn before hearing, but we did get 8 a favorable result. 9 And we did not lose any cases in 2010, which is 10 kind of unique for us, but it was a good litigation 11 year. So, I just really included those for your 12 reference. 13 I am more than happy to answer any questions 14 you have on anything. 15 MR. HORTON: Thank you, Mr. Way. 16 Discussion, Members? 17 MS. STEEL: I -- 18 MR. HORTON: Mr. Runner, them Ms. Steel. 19 MR. RUNNER: Just I want to thank you. 20 We sent over -- 21 MR. WAY: Yeah. 22 MR. RUNNER: -- a series of questions late last 23 week. 24 MR. WAY: Any -- 25 MR. RUNNER: And we appreciate the 26 responsiveness, answered our issues. 27 MR. WAY: Yeah, any time you have a question -- 28 MR. RUNNER: Saves us a lot of time from going 12 1 through it here. 2 So -- 3 MR. WAY: We're happy to answer. 4 MR. RUNNER: Thank you very much. 5 MR. WAY: Any time you have a question, please 6 send them over. I'd be happy to answer those. 7 MR. RUNNER: Thank you. 8 MR. HORTON: Madam Steel? 9 MS. STEEL: I wish I did that too. 10 MR. WAY: Seriously, any time, you know -- 11 MS. STEEL: Sure. 12 MR. WAY: -- if you've got questions, we're 13 more than happy to answer those. 14 MS. STEEL: I am going to just jump back and 15 forth. 16 MR. WAY: Okay. 17 MS. STEEL: There's a resolution program 18 that -- under Treasury function cases? 19 MR. WAY: Uh-huh. 20 MS. STEEL: Just exactLy what resolution 21 program means? 22 MR. WAY: Well, there's tech -- you know, we 23 have -- we have a settlement option for our 24 administrative dispute resolution that's fixed in 25 statute. 26 It requires you to go into the settlement 27 program and actually negotiate each case. So, we took a 28 look at the Treasury function cases and we looked at the 13 1 court decisions and the B of E decisions and kind of got 2 a flavor for where the parameters were on how much 3 receipts in the sales factor it took before the matter 4 became distortive. 5 And, really, based upon the prior cases, we 6 initiated a program to taxpayers and said basically, 7 "We have one option for you, if you want to 8 participate in this resolution program." 9 It was tiered based upon the amount of receipts 10 you had in your sales factor, with different results 11 depending on your specific facts. But we said, 12 "We will automatically accept -- you know, if 13 you file your return and agree to this, we 14 will automatically accept this percentage and 15 go forward." 16 We also took them, 17 "You have the option to go to settlement, if 18 you feel like your facts are unique and you 19 want to negotiate, you know, an independent 20 settlement from this program." 21 But we thought for efficiency purposes, since 22 so many of these cases were the same -- and, frankly, 23 from 2011 forward, with the new law, none of these 24 receipts will be part of the sales factors. We figured 25 we have a limited number of years with a limited number 26 of taxpayers. Let's develop an initiative to deal with 27 these taxpayers and give them some options based upon 28 their facts. But it wouldn't require a formal 14 1 settlement. 2 So, that's why we termed it a resolution 3 program. 4 MS. STEEL: I see. So, from 2011, it's not 5 happening? 6 MR. WAY: It won't be an issue unless the law 7 changes, but it won't be an issue currently because 8 these receipts will not be included. 9 MS. STEEL: Okay. 10 MR. HORTON: Thank you. 11 Miss Yee? 12 MS. STEEL: And -- 13 MR. HORTON: My apologies. 14 MS. STEEL: I have a bunch of questions -- 15 MR. HORTON: Go right ahead. 16 MS. STEEL: -- it's okay with you. 17 There is a VCI 1 and VCI 2. What is the 18 difference between those two. 19 MR. WAY: You know, I -- the VCI 2 is in 20 concept. I understand it did go into a bill last week. 21 We haven't analyzed the bill yet to know all of 22 the differences. The VCI Option 1 allowed a taxpayer to 23 participate. They were still required to pay some 24 penalties. 25 I think the biggest issue in VCI 2 is the 26 taxpayer does not have to pay any penalties. 27 MS. STEEL: (unintelligible) that -- 28 MR. WAY: There still will be, I believe, a 15 1 uniform definition of an abusive tax avoidance 2 transaction and some other -- I think there's an 3 extension of the statute of limitations from eight years 4 to twelve years and there's certain things like that. 5 But I think primary difference is you are 6 allowed to just pay tax and interest and move on, which 7 is a more advantageous, really, structure than the first 8 one. 9 MS. STEEL: Okay. And then there is a -- go 10 back to one of your -- the documents here, that closed 11 settlement cases by the calendar year? 12 MR. WAY: Uh-huh. 13 MS. STEEL: And how -- what is this "closed" 14 mean? 15 And then how many these are successful? And 16 how many of your still working on and successfully 17 closed because I want to see those numbers. 18 MR. WAY: Okay. These mean that they were 19 successfully closed and a settlement was reached. 20 MS. STEEL: So, it's between taxpayer and FTB? 21 MR. WAY: Correct. I think last year, 72 22 percent of our cases that went into settlement actually 23 settled. 24 MS. STEEL: Uh-huh. 25 MR. WAY: It varies -- it varies each year. 26 It's been as low as 50 and it's been as high as 75. So, 27 the 72 percent figure for last year in kind of in the 28 ballpark for where it usually goes. 16 1 So, is that -- is that the information you were 2 looking for? 3 MS. STEEL: Well, yeah. 4 MR. WAY: So, we -- you know, approx -- say, 5 approximately 150 cases -- I don't have the number right 6 here -- but say 150 cases went into settlement for last 7 year, you know, 121 of those we actually reached 8 settlement on. 9 It's that type of universe. 10 MS. STEEL: What happened to the other -- 11 MR. WAY: They go back -- 12 MS. STEEL: -- they just close? 13 MR. WAY: So, they will go back. And generally 14 they will go to appeal status after that and go through 15 the appeal function. 16 You know, I -- I think it's probably about 75, 17 maybe 80 percent of those cases historically go to 18 Appeals, we are successful in those appeals. 19 I can get -- I get some more stats for you if 20 you want actual stats, but it's somewhere in that 21 neighborhood. 22 MS. STEEL: Okay. And then the -- you know, I 23 see dramatic difference between docketed and undocketed 24 cases, a time line there. 25 That's -- the FTB track issues -- can you give 26 me like top issues clogging the protest and appeals, the 27 docket? 28 MR. WAY: I actually -- I actually do have that 17 1 information. 2 Do you want -- do you want me to run through 3 those? 4 MS. STEEL: Sure. 5 MR. WAY: Or did you want me to -- 6 MS. STEEL: Just quick or -- 7 MR. WAY: I can -- in our docketed protests, 8 the top six issues are tax shelters, with 199; nexus 9 related issues, which are corporate contacts with 10 California; residency and sourcing -- and that's pretty 11 customary because both of those are highly factual 12 issues, so, it's common you're going to have protest on 13 those issues. 14 MS. STEEL: It's residency and sourcing? 15 MR. WAY: Yes, it would be the third highest. 16 MS. STEEL: Is it -- is it like domicile? 17 MR. WAY: Yeah, it can be, but it's -- you 18 know, it's either are you a resident of California or is 19 -- should your income be sourced here? 20 But they're really both -- 21 MS. STEEL: Okay. 22 MR. WAY: -- around the same issue. 23 MS. STEEL: Okay. 24 MR. WAY: The fourth issue we characterize as 25 gain or loss. It's gain or loss on a transaction. It 26 could be basis issues or 1031 exchange or things like 27 that. 28 And then we had a tie between unity, whether a 18 1 taxpayer is unitary, and then Native American issues are 2 really our top six in Legal. 3 And then I have PIT statistics, I mean, audit 4 statistics, the undocketed, in three different areas, 5 PIT, Apportioning and Non Apportioning. 6 Do you want all of those or would you rather 7 have me e-mail those or -- 8 MS. STEEL: You can just e-mail to me. 9 MR. WAY: Yeah. 10 MS. STEEL: Yeah, and it's great. 11 MR. WAY: I'd do -- I'd be happy to do that -- 12 MS. STEEL: We need to look at. 13 MR. WAY: -- for you. 14 It's again -- it's -- again, those are a lot of 15 credits, EZ credits and research credits and some -- 16 some gain or loss in 1031 exchange issues. 17 And those kind of depend on the audit 18 programs -- 19 MS. STEEL: Okay. 20 MR. WAY: -- that are being done. 21 MS. STEEL: Do you -- are tax credits claimed 22 on amended return differently than credits claimed on 23 the original return? 24 MR. WAY: As far as auditing purposes? 25 MS. STEEL: Uh-huh. 26 MR. WAY: It does not get -- the fact that you 27 claim a credit on an amended return does not mean that 28 you are going to be guaranteed an audit or anything like 19 1 that. They still do modeling on both original and 2 amended returns for tolerances. 3 I will say on a credit basis, let's say an 4 R & D, there are a lot of -- there are a lot R & D 5 credits filed on amended returns because somebody has 6 come in and done a study on the back side and basically 7 gone through the receipts and come up with an R & D 8 number based upon that study. 9 We often find there aren't contemporaneous -- 10 contemporaneous receipts and things like that. So, 11 there it's not that you end up automatically being 12 audited, but I think if you have an R & D credit and, 13 say, a firm has gone through and done an R & D study and 14 after some initial questioning it's clear that there 15 isn't documentation, you probably are more likely to 16 actually have an audit. 17 But it doesn't mean you're going to -- 18 MS. STEEL: Certain sections? 19 MR. WAY: -- yeah, doesn't mean you're going to 20 get one, per se. It is common, though. 21 MS. STEEL: Okay. 22 MR. WAY: -- on amended returns to approach 23 credits differently than a taxpayer normally does in the 24 normal course of their business. 25 MS. STEEL: Okay. Just my final question, that 26 some appeals, especially residency or multi tax issues 27 that audit and protest periods extremely long and some 28 of them are more than ten years. 20 1 Are you working on this speeding up the process 2 and how? 3 MR. WAY: You know, we are working on speeding 4 up the process. I think the Department used to have a 5 much larger problem with old protests than we do now. 6 We've made a concerted -- so, in Legal, you 7 know, we had the 12, 18 and 24 month periods where we 8 tell staff, "You need to have these things done." 9 Audit is very, I think, cognizant of the fact 10 that contemporaneous records for taxpayers are really 11 essential in an audit. You need to start auditing 12 people more quickly. 13 So, I think they have done a lot of that. I 14 think you will find that our older protests, they're 15 sitting there usually on deferred status because of 16 litigation. These are litigation case, a bankruptcy 17 case or things like that. 18 It's really, at this point, not probably 19 related to audit activity or protest activity and the 20 fact we're not getting to it. 21 I will say that one exception is probably the 22 tax shelters, though. That's largely due -- there's a 23 lot of documentation required, there is a lot of idea -- 24 information document requests going back and forth to 25 develop the case. Factually, those cases are very hard 26 to develop and they are so complicated and, generally, 27 so many different entities involved, it does take us 28 longer to do those. 21 1 But I think you'd find, on the whole, that we 2 don't have the backlogs in the Department that we used 3 to have. The Department is working pretty diligently to 4 make sure those backlogs don't happen. 5 MS. STEEL: Thank you. 6 MR. WAY: You're welcome. 7 MR. HORTON: Madam Yee? 8 MS. YEE: Thank you very much, Mr. Chairman. 9 Thank you, Mr. Way, for your overview, good 10 morning. 11 I had a couple of questions, if I may? Let me 12 just start out with the Voluntary Compliance 13 Initiative 2. So, the legislation that was pending in 14 2010 is that -- that's currently before the legislature? 15 MR. WAY: I believe the bill well into print 16 late last week. I have not read the bill. 17 I do not believe this bill -- the other bill, 18 at least in its original iteration, had a lot of what 19 you would call sticks in it. And I think it met with a 20 lot of opposition. Those sticks were removed. But I 21 don't think before it had kind of tainted everybody's 22 taste for what the bill was like. 23 So, I would assume that the new bill does not 24 have all those sticks that the old one had. 25 But, I am sorry, I haven't had a chance to 26 actually read the printed version that went in last 27 week. 28 MS. YEE: Marcy, were you going to say 22 1 something? 2 MS. MANDEL: No, no, I -- my understanding's 3 pretty much the same, that last year there were some 4 technical issues with the bill and, so, there were going 5 to be some amendments but -- 6 MR. WAY: When there -- 7 MS. MANDEL: -- I haven't read -- I haven't 8 read what they put in last week either. 9 MR. WAY: Lawyers and CPAs may lose their 10 licenses. 11 MS. MANDEL: Yeah. 12 MR. WAY: It just generates a lot of 13 opposition. 14 MS. MANDEL: Sure it does. 15 MR. WAY: And I don't believe those provisions 16 will be in the current bill. 17 MS. YEE: That's unworkable? 18 MS. MANDEL: That VCI 2 was sort of the 19 nomenclature that the FTB staff has put on it. 20 MR. WAY: Right, it'll be called something 21 else. 22 MS. YEE: I understand. 23 I guess, can you -- can I just extend kind of a 24 pending invitation for you to come back to us and just 25 brief us? 26 MR. WAY: Oh, sure, I'd be happy to do that. 27 Or we can provide written, anything you want. 28 MS. YEE: Okay. 23 1 MR. WAY: We'd be happy to. 2 MS. YEE: I am very interested in this issue 3 and particularly as it relates to not only how the 4 Franchise Tax Board will utilize its own resources going 5 forward, but certainly for our planning purposes. 6 MR. WAY: I'd be happy to do that. 7 MS. YEE: Okay. Secondly, with respect to the 8 R & D cases, conceivably -- and I know that the 9 existence of contemporaneous documents is always an 10 issue with respect to those cases, but conceivably could 11 some of these cases, given the numbers of them that are 12 pending, also be subject to the same kind of resolution 13 process that Treasury function cases were placed under? 14 MR. MAY: You know, it probably could. I mean, 15 we like -- 16 MS. YEE: I know it's too early to tell. 17 MR. WAY: -- no, the shelters, last year we 18 went through a concerted effort to group shelters. I 19 don't know that we have done the concerted effort to 20 group R & D cases. But, you know what, why don't we do 21 that? 'Cause there's -- obviously, there is a lot of 22 them, they are difficult. I think we probably could do 23 something along those lines. 24 So, why don't we take a look at that? 25 MS. YEE: All right. 26 MR. WAY: And then, you know, maybe get back to 27 you -- 28 MS. YEE: Okay. 24 1 MR. WAY: -- on some of these things? 2 MS. YEE: And I'm not looking for anything 3 specific. 4 MR. WAY: No, that's -- 5 MS. YEE: Maybe we haven't heard enough of them 6 because they're all so different before this Board to 7 give you enough direction to do that, but I'm just 8 looking at the numbers and certainly, as you are mindful 9 of the efficiency -- 10 MR. WAY: Yes. 11 MS. YEE: -- as you were with the Treasury 12 function. 13 MR. WAY: There is a large -- let us take -- 14 that would be a good thing for us to take to look at. 15 Let us do that. 16 MS. YEE: Okay, very good. 17 And then, finally, with respect to residency 18 cases, which I note is not on your list, and are 19 probably some of the more difficult cases that we have 20 to hear and deliberate, has there been some thought with 21 respect to some alternate resolution process for them? 22 Obviously, the sensitivity being that they are 23 so invasive with the respect to an Appellant's personal 24 situation? 25 MR. WAY: We have had discussions. I mean, 26 honestly, the difficulty for us is with the Hyatt 27 litigation pending -- 28 MS. YEE: Yes. 25 1 MR. WAY: -- we're in a kind of difficult 2 position and needing some resolution there. 3 MS. YEE: Yes. 4 MR. WAY: We have had some rather robust 5 discussions in Department about residency alternatives. 6 I think we look forward to doing some of that at the 7 appropriate time. 8 MS. YEE: Okay. Very good, thank you very 9 much. 10 MR. WAY: Okay. 11 MS. YEE: Thank you, Mr. Chair. 12 MR. HORTON: Thank you, Ms. Yee. 13 Mr. Way, on the VCI 2 is it -- is it possible 14 just to insure continuity with our agencies that your 15 staff can possibly work with Ms. Yee's staff in the 16 formation of the language as we go forward and meeting 17 with the legislation so we have some continuity, at 18 least in concept? 19 If that's he acceptable to Miss Yee? 20 MR. WAY: We could certainly engage in 21 dialogue. I believe, you know, this did -- this was the 22 Governor's proposal and the language going that way -- 23 MS. MANDEL: Right. 24 MR. WAY: -- we will make comments on it. We 25 generally -- well, can certainly stay -- keep Ms. Yee's 26 staff informed of what's going on, at least what we see 27 happening down in the legislature and at least our bill 28 analysis of the adminstratability (verbatim) of this 26 1 section. 2 MS. YEE: Yes. We'll be in close contact about 3 that. 4 Yeah, I realize it's the administration, but -- 5 but I just wanted to be sure of the workability -- 6 MR. WAY: Yeah. 7 MS. YEE: -- of whatever that proposal is. 8 MR. WAY: Happy to do that. 9 MS. YEE: Okay. 10 MR. HORTON: And then as a body we may very 11 well want to take a position -- 12 MR. WAY: Okay. 13 MR. HORTON: -- probably on that. 14 Thank you very much. 15 MR. WAY: Thank you. 16 ---o0o--- 17 18 19 20 21 22 23 24 25 26 27 28 27 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 FEBRUARY 22, 2011 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 27 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: MARCH 9, 2011 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 28