1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 FEBRUARY 23, 2011 10 11 SALES AND USE TAX APPEAL HEARING 12 ADMINISTRATIVE PROTEST OF 13 CALDRON'S JEWELERS, INC. 14 NO. 418580 (KH) 15 PETITION FOR REDETERMINATION OF 16 RICHARD CALDRON 17 NO. 422927 (KH) 18 19 20 21 22 23 24 25 26 27 Reported by: Juli Price Jackson 28 CSR No. 5214 1 1 P R E S E N T 2 For the Board Jerome E. Horton of Equalization: Chairman 3 4 Michelle Steel Vice-Chairwoman 5 6 Betty T. Yee Member 7 8 George Runner Member 9 10 Marcy Jo Mandel Appearing for John 11 Chiang, State Controller (per Government Code 12 Section 7.9) 13 14 Diane G. Olson, Chief 15 Board Proceedings Division 16 17 For Board of David Levine Equalization Staff: Staff Counsel 18 19 For Department: Andrew Kwee Tax Counsel 20 21 Kevin Hanks Chief, Headquarters 22 Operations Division 23 Robert Tucker Tax Counsel 24 25 For Petitioner: Abe Golomb Representative 26 Cyril Lawrence 27 Attorney 28 ---oOo--- 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 FEBRUARY 23, 2011 4 ---oOo--- 5 MS. OLSON: Okay, our next item is C7a, Richard 6 Caldron and C7b, Caldron Jewelry, Incorporated. 7 Please come forward. 8 Board Proceedings has received contribution 9 disclosure forms for this morning's hearings from the 10 parties, agents and participants. All forms were 11 properly completed and signed. All parties, agents and 12 participants are on the alpha listing provided to your 13 office. 14 Each person sitting at the table will be asked 15 to introduce themselves and, if necessary, their 16 affiliation with the taxpayer for the record. 17 Ten minutes is allocated for the taxpayer's 18 opening presentation, followed by ten minutes for the 19 Department's presentation and five minutes is allocated 20 to the taxpayer for rebuttal. 21 Mr. Horton? 22 MR. HORTON: Thank you. 23 Mr. Levine, please introduce the matter. 24 MR. LEVINE: Good morning, Chairman Horton, 25 Members, David Levine for the Appeals Division. 26 The issues in this administrative protest of 27 Caldron's Jeweler's, Inc., and petition for 28 redetermination for Richard Caldron are whether the 3 1 Notices of Redetermination were timely for the period 2 July 1, 2001 through December 31, 2002; whether the 3 negligence penalty should be upheld; and whether relieve 4 is warranted for other penalties. 5 MR. HORTON: Thank you. 6 Would the taxpayer introduce themselves for the 7 records? 8 You have ten minutes to make your presentation, 9 upon which time the Department will have ten minutes to 10 make theirs and then we'll return for five minutes 11 rebuttal. 12 MR. GOLOMB: Okay, thank you. 13 I'm Abe Golomb with Sales Tax Reduction 14 Specialists. 15 MR. LAWRENCE: And I'm Cyril Lawrence on behalf 16 of the taxpayers. 17 MR. HORTON: Thank you. 18 MR. GOLOMB: I'm going to, in the presentation, 19 use the singular to describe both taxpayers. It's much 20 simpler. 21 This business is a small -- excuse me -- a 22 family run jewelry store located in downtown Tracy. 23 This jewelry store business was founded by Richard 24 Caldron's father after he returned from World War II. 25 After Richard Caldron returned from service in 26 the military during the Vietnam era, he joined the 27 jewelry store also and, eventually, took it over. 28 Mr. Caldron followed exactly the same 4 1 procedures his father had used in running the jewelry 2 store. So, this business had been in existence 3 basically from the end of World War II. And the first 4 time they had any dealing with the Board of Equalization 5 is when they were chosen for this audit. 6 The auditor went out, examined the taxpayer's 7 business operation and the records. Unfortunately, the 8 audit staff misinterpreted the business operations and 9 misunderstood the records. 10 Based on the misinterpretation and 11 misunderstanding, the audit staff decided to assert a 12 fraud penalty. When they asserted this fraud penalty, 13 they took a look back to January 1st, 1996 for 14 liability. 15 When Mr. Lawrence and myself got involved at 16 the Appeals conference and as a follow-up, we proved to 17 the audit staff's satisfaction that there was no fraud 18 present. And, in fact, the audit staff pointblank told 19 me that if they hadn't thought of fraud, they would not 20 have had any look back at all. They would have just 21 performed a normal three year audit. 22 Also the audit staff was so confident of the 23 fraud that they decided not to even update the waivers 24 of limitation. So, when the staff removed their 25 recommendation for fraud, they took off the liability 26 for the period January 1st, 1996 to June 30th, 2001. 27 They said, however, starting July 1st, 2001 through 28 December 31st 2002, we're going to hold on to that 5 1 liability because that happens to magically fall in the 2 amnesty periods. 3 Even though we shouldn't have looked back, even 4 though we really didn't have the evidence for fraud, 5 we're going to hang on to this liability. And this is 6 one of the key issues we're talking about today -- is 7 this hanging on to this liability for this amnesty 8 period, where the whole purpose of the audit initially 9 was to assert fraud. They walked away from fraud, but 10 they're not giving up this portion of the tax liability. 11 Now, in addition, by having this amnesty period 12 and by asserting penalties, the penalties are doubled 13 and the interest is increased by 50 percent. So, the 14 staff made a mistake. Taxpayer bears negative 15 consequences. Staff bears no negative consequences due 16 to their mistake. Only this taxpayer is bearing the 17 negative consequences. 18 That is not the purpose of the sales and use 19 tax law or the Board's procedures. It is not intended 20 to punish innocent taxpayers is simply for going through 21 an audit and having the staff overreach. 22 Now, the staff is holding that there's 23 negligence. There is no negligence here. This 24 taxpayer, basically, or this business, has been in 25 existence for over sixty years. The vast majority of 26 their activity is repair sales. They repair jewelry for 27 their customers. It was their understanding that repair 28 sales of jewelry are exempt from tax. In fact, this is 6 1 a common misunderstanding among jewelers. This is not 2 unique. So, as a consequence, they did not tax repair 3 sales because as far as they were concerned, it was 4 exempt repair labor. 5 Part of that was a misunderstanding, part of 6 their repair are taxable. But they had no knowledge of 7 this. They had been in business over 60 plus years. 8 They've never had any dealings with the Board of 9 Equalization. The first dealings they have, they're 10 slapped with a fraud audit. 11 Then when the staff gives up the fraud, they're 12 saying, "Oop, but you're still negligent." They're not 13 negligent, they're just trying to survive. That's all 14 they were trying to do. 15 Now, also, there's a finality penalty. Let's 16 talk about that. Mr. Lawrence was retained by both 17 taxpayers. The staff mailed the Notice of 18 Determination, Mr. Lawrence asked for a copy of it, they 19 mailed his copy for the corporation to a wrong address. 20 He never got it. He couldn't file a petition because he 21 never got the copy. The taxpayer assumed he got a copy, 22 he didn't. Okay, the staff made a mistake -- another 23 mistake. Taxpayer bears the financial consequences. 24 They get slammed with a finality penalty. Also they are 25 -- they didn't withhold collection. 26 So, here we have two staff mistakes. The staff 27 is not bearing any consequences. There is no 28 accountability for the staff. The only party that's 7 1 bearing consequences is the taxpayer. 2 Is that what the system is intended to 3 encourage? Mr. Horton was speaking during the wine 4 situation about behavior modification. And I think this 5 is very apropos to this situation. The staff has no 6 negative consequences. Why should they modify their 7 behavior? 8 I believe they should bear negative 9 consequences if they make mistakes that financially 10 damage taxpayers. And my suggestion, as it relates to 11 this case, is that the staff be barred from asserting 12 tax, penalties, interest for the period July 1st, 2001 13 to December 31st, 2002. 14 Otherwise, they have obtained this information 15 in an invalid fashion and they are asserting tax. And 16 in every other arena -- in the legal system, the 17 criminal justice system -- if evidence is obtained and 18 in invalid, inappropriate fashion, that evidence is 19 barred. However, in the Board of Equalization system 20 somehow it does not get barred. The staff can rely on 21 it. They can assert tax. And they can punish taxpayers 22 by doubling the penalties and increasing the interest by 23 50 percent. 24 That is not the intent of this procedure. This 25 taxpayer deserves to be treated fairly and he has not 26 been -- they have not been in this case. 27 Now when the Decision and Recommendation was 28 issued, it was issued by one of the most senior tax 8 1 counsels in the Appeals subdivision. And, lo and 2 behold, the Decision and Recommendation claimed that 3 periods outside the amnesty period fell under the ten 4 year statute of limitations. The statute of limitations 5 is one of the most basic sections of the sales and use 6 tax law. It is -- I find it incredible that that 7 occurred. 8 What I find more incredible is I've been 9 instructed by the Appeals Division that they go through 10 a very thorough review of their Decision and 11 Recommendations before they are issued, yet the review 12 missed this fact. 13 MS. OLSON: Time has expired. 14 MR. HORTON: Sir, could you conclude your 15 comments and -- 16 MR. GOLOMB: Yes, just one quick -- and then 17 I'll -- 18 MR. HORTON: -- you have minutes on rebuttal. 19 MR. GOLOMB: -- I appreciate it. 20 Also when the Decision and Recommendation was 21 issued, it is read by the audit staff. No one made 22 mention of this grievous error until about a week before 23 this Board hearing. 24 MR. HORTON: Thank you much. 25 MR. GOLOMB: Thank you. 26 MR. HORTON: Will the Department introduce 27 themselves for the record? 28 And you'll have ten minutes to make your 9 1 presentation. 2 MR. KWEE: Yes. Good morning, Mr. -- 3 Chairman Horton and Members of the Board. 4 MR. HORTON: Good morning. 5 MR. KWEE: I am Andrew Kwee, on behalf of the 6 Legal Department. 7 And with me today are Bob Tucker, also from the 8 Legal Department and Kevin Hanks from the Sales and Use 9 Tax Department and we will be representing staff. 10 The Notice of Determination was timely issued 11 with respect to the remaining quarters at issue. 12 The Petitioner, Mr. Caldron, and the taxpayer, 13 Caldron's Jewelers, collectively, Petitioners, dispute 14 the portion of the liability covered by the amnesty 15 program. 16 Now, it's not disputed that the ten year 17 statute of limitations applies with respect to a 18 determination upon a return filed during the amnesty 19 period and the determination was timely issued within 20 this ten year time frame. So, because the determination 21 was timely issued, in other words, the determination is 22 timely issued within the meaning of Section 7073. 23 Now, the Petitioners claim that it is 24 inconsistent with our policy if we extend the audit 25 period past the three year audit period for this 26 particular taxpayer. However, this is not correct. 27 At the start of the field auditor -- at the 28 start of the field audit, the auditor discovered 10 1 evidence of fraud and, therefore, the audit was -- the 2 audit was performed and the limit -- the period was 3 expanded accordingly. 4 It wasn't until the Petitioners provided new 5 documentation, after the Appeals conference, in 6 connection with their appeal and their petition that the 7 fraud penalty was later reduced to a negligency penalty. 8 The audited periods covered by the amnesty 9 periods were not deleted from the determination because 10 they were billed timely within the meaning of 11 Section 7073, which is the ten year statute of 12 limitations period. 13 Further, it was noted that, based on the 14 various factors which are listed in Operations Memo 1122 15 and in a November 2005 Tax Notice, that at the start of 16 the field audit it was consistent with your policy if we 17 had extended the eligible amnesty periods -- extended 18 the three audit periods to include the amnesty periods. 19 Regarding the negligence penalty, as noted in 20 the Decision and Recommendation, their reporting errors 21 were 437 percent of the unreported taxable sales to 22 reported sales. In other words, only 19 percent of the 23 corporation's taxable sales were reported to the Board 24 during the remaining periods at issue. 25 Finally, with regard the finality penalty, as I 26 have noted, in the Decision and Recommendation, the 27 Appeals Division recommends and the Department concurs 28 that, provided the remaining disputed amount is paid 11 1 within 30 days of the decision -- the Board's 2 decision -- going final, that we would recommend the 3 relief of their finality penalty. 4 And it also recommended relief of the finality 5 penalty with respect to the conceded tax, provided that 6 the tax was paid within 30 days of the Decision and 7 Recommendation going final. But that did not occur. 8 Therefore, we concur with the Appeals 9 Division's recommendation. 10 MR. HORTON: Thank you. 11 MR. LEVINE: Can I correct the record? 12 I do not believe that's our recommendation. We 13 are no longer recommending relief of the finality 14 penalty. 15 Part of the conditions for relief are that the 16 conceded portion be paid and, normally, we expect it to 17 be paid -- be paid promptly. 18 In this case, because of the circumstances, we 19 gave 30 days after the D & R to pay the conceded portion 20 as a condition for relief of the finality penalty, if 21 the rest of the conditions were met, which was timely 22 payment, if the Board upheld the assessment. 23 Since they didn't pay the conceded portion, we 24 no longer recommend relief of the finality penalty. 25 The Department -- I think the Department just 26 misunderstood our recommendation, but if it wants to 27 separately concede that -- 28 MR. HORTON: Let me -- let me go back to the 12 1 Department to see if they want to clarify their 2 testimony in that regard. 3 MR. TUCKER: Robert Tucker on behalf of the 4 Legal Department. 5 We concur with -- as spoken by Mr. Levine right 6 now. 7 MR. HORTON: Thank you very much. 8 Rebuttal? 9 MR. GOLOMB: Yes, thank you. 10 Basically, the Department is claiming that the 11 Notice of Determination is timely. That's not what we 12 arguing here. 13 What we're arguing here is they never should 14 have looked back. The only reason they looked back was 15 to assert fraud. The audit staff admitted they were 16 wrong. There was no fraud. They misunderstood the 17 taxpayer's operations and they misinterpreted the 18 records. 19 Yes, there potentially is a significant 20 understatement. But what caused that understatement? 21 That's what they do not understand. 22 And this is not uncommon in little, family run 23 jewelry stores that depend significantly on repair sales 24 for the major percentage of their sales. This taxpayer 25 simply understood that these sales were exempt. He 26 reported them as exempt. 27 Obviously, his understanding may not be 100 28 percent correct. That is not fraud. That does not give 13 1 the staff the right to latch onto these liabilities and 2 assert them. 3 Because what we have here is we have liability 4 for the period July 1st, 2001 through December 31st, 5 2002; then for the period January 1st, 2003 to 6 June 30th, 2004, there is no liability. Then we have 7 liability again for the period July 1st, 2004 through 8 September 30th, 2005. 9 What we have here is a dromedary camel 10 liability issue. That is not the intent of the Board 11 procedure to utilize the amnesty program to punish 12 taxpayers simply because they don't understand the sales 13 and use tax law. And that's what's happening here. 14 And the staff is trying to pretend that, "Oh, 15 we made a mistake." But they bear no negative 16 consequences. All the negative consequences in this 17 entire case, from the beginning, have been born solely 18 by this taxpayer. 19 In fact, this taxpayer, in conversations with 20 me, has indicated that he feels by being a businessman 21 in California equivalent to a second class citizen. 22 He's just amazed as to what has occurred. And he's been 23 in business for -- well, this business has been in 24 existence for well over 60 years. 25 And this audit has basically pushed it against 26 the wall. They may not survive. Is that the intent of 27 the audit program -- to put innocent taxpayers out of 28 business by aggressive enforcement of the fraud penalty? 14 1 The key here is that Headquarters, when they 2 received that fraud memo from the District, should have 3 critically analyzed it. They didn't. They just rubber 4 stamp them, mostly, you know. 5 So, basically, you put phrases in those memos. 6 There is no evidence behind them. If the words sound 7 good, they're approved. 8 But when the evidence comes out that those 9 allegations are not supported by evidence -- and don't 10 forget the staff has 100 percent -- bears 100 percent of 11 the burden and is clear and convincing -- basically, 12 what they're saying is any allegation we make meets the 13 standard -- whether they have the evidence or not. 14 Simply put, this is strict -- this is very 15 clearly a case of equity. This taxpayer deserves to be 16 treated fairly by the Board of Equalization. 17 He does not deserve to be punished for the 18 errors, omissions and commissions by the Board audit 19 staff in this case. 20 And the only liability he should be asserted 21 for is the liability for July 1st, 2004 through 22 September 30th, 2005 -- the tax and the interest, no 23 penalties. 24 Thank you. 25 MS. MANDEL: Questions? 26 MR. HORTON: Thank you very much. 27 Ms. Mandel? 28 MS. MANDEL: I have some questions that I think 15 1 go to the penalties because, of course, the penalties -- 2 well, the negligence penalty goes to sort of the entire 3 liability, both this disputed period and everything. 4 MR. GOLOMB: That's correct. 5 MS. MANDEL: And I understand the negligence 6 penalty is imposed if there's negligence for any part of 7 the period -- the audit period. So, that's why you've 8 put it on everything. 9 But -- so, with that in mind, I want to kind of 10 focus on the facts supporting, basically, the amnesty 11 penalty and maybe also then the finality penalty. 12 The amnesty penalty is imposed for not 13 participating in the amnesty, unless you had reasonable 14 cause for not participating in the amnesty. So, when I 15 read through the D & R it seemed like there were two 16 things going on in this taxpayer's books. 17 Because of his misunderstanding of the repair 18 labor issues, which my reading of the D & R was that -- 19 that the Appeals officer understood that 20 misunderstanding and seemed -- and it appeared to me 21 they -- that there was some sense of, at some level, a 22 reasonable understanding. Like it wasn't -- it's 23 clearly not fraud and that it was a misunderstanding of 24 the application of the law to the facts. 25 And it seemed to me that what Appeals was 26 relying more on was the taxpayer had these two journals 27 that he tried -- that he kept to segregate in his 28 journals. 16 1 Journal No. 1 is where I'm, you know, selling 2 stuff that I'm collecting the sales tax on. That's -- 3 that's what was my understanding of the two journals. 4 And Journal No. 2 was where he was recording 5 what he thought was -- what was his repair labor, all of 6 the things that he thought was nontaxable. 7 He kept these two journals, is that -- 8 MR. GOLOMB: No, that's not 100 percent 9 correct. 10 Let me very briefly respond to you -- your 11 question. 12 MS. MANDEL: Okay. 13 MR. GOLOMB: As I mentioned, the vast majority 14 of his sales were repair labor. He does not do his own 15 repairs. He has subcontractors. 16 And, so, what he did is kept a separate journal 17 for each subcontractor. So, if Cyril Lawrence was a 18 subcontractor, he would be in one journal. If I was a 19 subcontractor repairing, I'd be in another journal. 20 MS. MANDEL: Okay. 21 MR. GOLOMB: And that's where he got in -- in 22 other words -- 23 MS. MANDEL: Okay, so, he had -- he may have 24 had multiple journals, but -- 25 MR. GOLOMB: -- that was for -- so he would 26 know who had -- who was doing the work. 27 And he also had different arrangements with 28 different subcontractors. Different subcontractors 17 1 would charge him different amounts for work. Some were 2 doing simple repairs. 3 MS. MANDEL: Uh-huh. 4 MR. GOLOMB: Some would do basically like major 5 reconstruction type of work. 6 MS. MANDEL: Right. 7 MR. GOLOMB: And, so, those people would get -- 8 MS. MANDEL: He might pay them differently? 9 MR. GOLOMB: And also, like if you bring in a 10 watch -- let's say you bring in a watch that doesn't 11 work -- 12 MS. MANDEL: Uh-huh. 13 MR. GOLOMB: -- he would send it out and have 14 it fixed. 15 He didn't -- other than putting a battery in a 16 watch -- 17 MS. MANDEL: Right, he didn't do that. 18 MR. GOLOMB: -- he didn't fix anything. 19 MS. MANDEL: Okay. But let me continue on and 20 so -- 21 MR. GOLOMB: Sure. 22 MS. MANDEL: -- there's -- let me tell you what 23 my understanding was and then you can correct it and 24 I'll see if I still have a place that I'm going. 25 My understanding was that there was a journal 26 for -- that there were now, I guess, multiple journals 27 of the repair labor because he's keeping track of his 28 subcontractors, but that he had a journal where, you 18 1 know, I could go in and buy something from him, right? 2 MR. GOLOMB: Yeah, he did have some -- 3 MS. MANDEL: So, he had a journal -- my 4 understanding was was that there was a journal -- a 5 journal where he was keeping track of sales that he 6 understood to be taxable and that he had collected sales 7 tax reimbursement on it. 8 And my understanding was that in this -- what I 9 thought was one journal, but now you're saying 10 potentially multiple journals, that there were some 11 sales recorded in there on which sales tax reimbursement 12 had been collected. 13 That's what I took from the D & R -- which 14 staff is nodding yes. 15 And, so, here's where I was kind of going, it 16 was from reading the D & R, it sounded like there was 17 some reasonableness to his business practice of keeping 18 separate journals for repair labor, which he didn't 19 think was taxable, and a journal where he was putting in 20 the stuff that he sold and collected sales tax 21 reimbursement on. 22 And it sounded like, at least the way Appeals 23 saw it, was that -- that putting these sales where he 24 collected sales tax reimbursement in these other 25 journals, which you're now describing as for the 26 subcontractors, was a mistake. That's how I kind of 27 read it and that those sales should have been in the 28 taxable journal. 19 1 But now you've added this complication of my 2 thinking that this -- what I thought was a single, 3 nontaxable repair labor journal was for subcontractors. 4 And, so, what I don't know now is these -- I assumed 5 they were, you know, gem sales or sales of actual 6 jewelry that sales tax reimbursement was collected on. 7 Were those incorrectly recorded in some 8 subcontractor's journal? Or were they actually somehow 9 correctly recorded, from his perspective of keeping 10 track of his subcontractors in the subcontractors 11 journal? 12 MR. GOLOMB: Let me kind of address a number of 13 issues all at once. 14 MS. MANDEL: Okay. 15 MR. GOLOMB: And it might make it clearer. 16 Because of the time limitation, I really didn't 17 describe his business fully. 18 If you walked into the jewelry store, it would 19 look like a jewelry store from the '40s, it has never 20 been updated. He has some jewelry displayed, but it's 21 mainly like Gold Hills jewelry. I mean, it's very 22 minimal. 23 Most people come and, you know, he's been 24 dealing with people over the years. Let me give you an 25 example, let's say you have a ring a stone fell out 26 of. 27 MS. MANDEL: Well, let me tell you why I was 28 going that way. Because that -- 20 1 MR. GOLOMB: Okay, yeah. 2 MS. MANDEL: -- you might not have to do the 3 whole big explanation. 4 When I read the D & R and I thought there 5 was -- if -- if the view was that it was some -- because 6 of his experience and his dad and how they did 7 everything, if there was -- if it was reasonable for him 8 to keep what I thought was a taxable journal and a 9 nontaxable taxable journal and he made a mistake and put 10 some what I -- gem or jewelry sales on which he had 11 collected sales tax reimbursement in the nontaxable 12 journal and then he does his returns. 13 And one of the things Appeals says is, "Oh, 14 well, he should have looked at both journals." And I 15 thought, well, but if his whole business practice was I 16 put stuff in this one and then I put the other stuff in 17 that one, if -- if he was doing it all and his view was 18 he was doing it right and he had no reason to believe 19 that he might have made a mistake in putting something 20 that he had collected sales tax reimbursement on in the 21 nontaxable journal, maybe it was reasonable for him not 22 to look at the nontaxable journal when he was doing 23 returns. 24 And, so, then my question was going to be, how 25 big -- what was the dollar figure during the amnesty 26 eligible period of what he was recording with sales tax 27 reimbursement collected on it in this nontaxable 28 journal? 21 1 Because Appeals is saying, well, for the 2 amnesty penalty, he should have known, he should have 3 realized that he had a problem on his returns during the 4 amnesty period and he should have gone in for amnesty 5 because he should have known because of this 6 misrecordation, the way it was described in the D & R, 7 this misrecordation of things he had collected sales tax 8 reimbursement on in what I was viewing as the nontaxable 9 repair labor journal. 10 And it seemed to me that to know whether he 11 should have known when he filled out the tax returns, 12 one of the things to know is how big was that number? 13 You know, it said a few sales -- a few sales in the 14 D & R. Was it a few sales -- $10, $50 $4,000? 15 So that when he filled out his tax return, you 16 know, sometimes we come in here and staff says, "Well, 17 when they filled out the tax return they should have 18 noticed." 19 You know, the guy's in business, he knows his 20 business, he knows what's going on, he should have 21 noticed that there was something really big missing off 22 that return. So that if he looked at his returns during 23 amnesty, or even when he signed them, you know, that he 24 should have known. 25 But if he was reasonable in keeping a separate 26 journal for what was nontaxable repair and he just made 27 a couple of little mistakes in putting stuff where he 28 had collected sales tax reimbursement in, what I was 22 1 calling the second journal, then -- you know, then I 2 wanted to know sort of the breakout of the numbers to do 3 the analysis. 4 So, if these contractor journals were something 5 more than what I was perceiving them to be, I need to 6 know that and Mr. Cyril -- Cyril, Mr. Lawrence? 7 MR. LAWRENCE: Lawrence, yes. 8 Just to clarify, the journals that he kept was 9 tracking what he owed the suppliers that did his 10 subcontract work and who had a particular customer's 11 piece of jewelry. 12 So, the journals didn't -- were showing his 13 obligations. Those are the very same journals that the 14 auditor concluded was a double set of books and, on that 15 basis, there is fraud here and that's the problem with 16 the auditor. 17 MS. MANDEL: Right. 18 MR. HORTON: Mr. Lawrence? 19 MR. LAWRENCE: However, we had -- he had a 20 professional preparer preparing his returns and the 21 preparer had all the records -- the same preparer 22 prepared his federal tax returns. 23 All he did was bring his paperwork to the 24 preparer. The preparer would prepare them. 25 But these journals did not reflect, 26 necessarily, a nontaxable sales. The journals were 27 reflecting his dealings with his subcontractors. 28 MS. MANDEL: Okay, well, I -- 23 1 MR. LAWRENCE: But he was collecting everything 2 and running it through his cash register, as far as I 3 recall. 4 MS. MANDEL: Okay. I appreciate that because I 5 didn't -- that's not how I understood it at all. 6 MR. HORTON: Ms. Mandel, would it help if the 7 Department spoke to the relativity of the amounts in 8 each journal? 9 MS. MANDEL: Sure. 10 MR. KWEE: Well, with regard to the amnesty 11 period, the amount of unreported taxable sales comes to 12 $239,245 and -- but the amount of the liability was 13 based on the reconciliation of bank receipts. 14 So, we don't have the exact figures for each 15 individual journal. 16 MS. MANDEL: Okay. 17 MR. HANKS: Ms. Mandel, if we could add too, 18 your explanation of these different journals is 19 absolutely correct. And that was one of the concerns 20 that the Department staff had initially when they 21 conducted the audit. 22 What we need to do, I think, is explore a 23 little about why the fraud penalty was asserted, but -- 24 to begin with -- 25 MS. MANDEL: I don't -- I am not interested in 26 the fraud penalty. I kind of thought from reading the 27 D & R, which now I am hearing is maybe -- maybe I read 28 it too fast and misunderstood how many sort of books and 24 1 journals were out there and what they were for -- but I 2 was kind of interested in the amnesty penalty, based on 3 the way I read it written up -- you know, as a possible 4 relief based on the way I rad it written up in the 5 D & R. So -- 6 MR. LEVINE: Can I comment? 7 From my -- 8 MR. HORTON: Sure. 9 MR. LEVINE: -- perspective, the amnesty 10 negligence penalties are tied together. 11 But for negligence, I think we would have -- I 12 would have recommended relief of the amnesty penalty, 13 conditioned on payment. 14 The problem is the collection of tax 15 reimbursement. And I agree if we were talking about 16 incidental transactions that didn't rise to the level of 17 negligence, that would be one thing. 18 I do not understand -- and I don't understand 19 all of the facts either -- but I don't understand, 20 especially from the percentage of repair business that 21 we're talking about just a small amount. There is -- 22 MS. MANDEL: Well, I understand that the dollar 23 figures they picked up for the repair business is not 24 itself a small amount. 25 But what the D & R talked about is that the 26 only -- that that -- he wasn't collecting on the -- on 27 what he thought was repair business because of all of 28 this misunderstanding and that what he did collect on 25 1 was some stuff, which sounded like it was a few things, 2 some small -- gosh, where is it in here? 3 It was -- it didn't -- you know, I was trying 4 to isolate the things that he collected tax on and the 5 broader things he had not collected tax on and 6 leaving -- and figuring out whether, you know, when 7 you -- when you -- 8 MR. LEVINE: I don't think you can do it from 9 there. 10 My suggestion would be we have Petitioner 11 describe when Petitioner collected tax reimbursement and 12 give the Department an opportunity to rebut that. 13 And if it's not clear, maybe we need to go back 14 and take a better look at that. Because I do think 15 that's -- in my view, that's a critical aspect to 16 whether Petitioner was negligent and the related -- 17 whether the amnesty penalty should be relieved. 18 MS. YEE: Yeah, and how and where that was 19 recorded because I think that's -- 20 MR. GOLOMB: Let me -- 21 MR. HORTON: And before we go there, let me 22 caution the taxpayer. 23 I believe Ms. Mandel has asked that very 24 question three different ways. So, the encouragement is 25 that we answer the question relative -- 26 MR. GOLOMB: Well, I'm trying to answer and let 27 me explain one key point that seems to bother me. 28 MR. HORTON: I think what might be helpful to 26 1 the Members is if we continue the line of discussion 2 until we resolve that. 3 But, of course, the representation of the 4 client is entirely up to you. But there's a question on 5 the floor that Ms. Mandel has addressed and quite a bit 6 of discussion. If possible, if not, we certainly 7 appreciate that as well. 8 MR. GOLOMB: The staff, in performing this 9 audit, had -- neither Mr. Lawrence nor myself were 10 involved. His outside bookkeeper and the taxpayer 11 himself dealt with the audit staff. 12 They provided whatever records and information 13 the audit staff desired. The audit staff had ample 14 opportunity to address every issue. 15 And what I hear and what bothers me is 16 Mr. Levine and Mr. Hanks are nitpicking, "Oh, well, what 17 about this?" 18 MR. HORTON: No, no, no, sir -- sir -- 19 MR. GOLOMB: That concerns me. 20 MR. HORTON: I'm not going to allow that type 21 of -- 22 MR. GOLOMB: I don't have a problem addressing 23 any issue. 24 MR. HORTON: Let me be helpful, if I could, 25 Ms. Mandel? 26 MS. MANDEL: I found the place in the D & R 27 where it -- 28 MR. HORTON: There is a specific question on 27 1 the -- that has been posed. 2 And the question deals with whether or not the 3 taxpayer collected sales tax reimbursement and on what 4 items did they collect and what was the amount of the 5 sales tax reimbursement? 6 MR. GOLOMB: They collected -- 7 MR. HORTON: And where was it recorded? 8 MR. GOLOMB: -- I will address that. 9 The taxpayer did have some taxable sales. As I 10 recall, they recorded their taxable sales in what was 11 called the red book. That red book is where they listed 12 their taxable sales -- it was the color of the book. 13 MS. MANDEL: Okay, I understand that. 14 MR. GOLOMB: And that book was turned over to 15 the outside bookkeeper. 16 MS. MANDEL: And I understand that's the 17 bookkeeper. So, it may be more of a question -- I don't 18 know who it's a question for, but I'll tell you where I 19 found the information, on page 15 in the materials, at 20 the top, line 1 to 3, during the discussion of the 21 negligence penalty, one of the things that's relied on 22 is what they say is a second sales journal -- and this 23 is where I got confused -- 24 "contained a small number of large sales," a 25 small number of large sales. 26 "For example, according to the Department, the 27 average repairs were between $10 and $50 for 28 most repairs, while in once," one case, "the 28 1 Department noted a sale of jewelry in the 2 amount of $4400 recorded in the second sales 3 journal." 4 This is during the discussion of the negligence 5 penalty. As I said, the negligence penalty applies to 6 the entire period, including the contested statute of 7 limitations amnesty eligible period. 8 This is why I had a question of the during the 9 amnesty eligible period, how many and to what dollars 10 were there these types of misrecordings that Appeals is 11 pointing to -- and I guess the Department relied on? 12 Because I don't know what happened during the 13 amnesty eligible period versus what happened outside the 14 amnesty eligible period. 15 And when Appeals talks about the negligence -- 16 I am sorry, the amnesty penalties, it seemed to me they 17 were mostly relying on this type of misrecordation and - 18 leaving aside this dispute over the repair labor. 19 Now, maybe I'm misunderstanding what they 20 mostly relied on, but that's why I had the question of 21 how much of that sort of thing happened during the 22 amnesty eligible period? 23 MR. GOLOMB: There's a typo here, I think it's 24 in one case. 25 MS. MANDEL: Yeah, it says "once." 26 So, that's my question. And if nobody can 27 answer my question, I don't -- you know, kind of whether 28 I can -- I'll be trying to -- I thought that there was 29 1 something helpful, but I'm getting frustrated because 2 nobody can understand -- answer my question. 3 MR. HORTON: Ms. Mandel, let's -- can -- can 4 you answer that question? 5 MR. GOLOMB: I'll try. 6 MR. HORTON: And would you like some assistance 7 from the Department? 8 They may very well have some knowledge of it, I 9 don't know. 10 MR. GOLOMB: Basically -- 11 MR. HORTON: This is -- 12 MR. GOLOMB: -- I'm sorry. 13 MR. HORTON: -- this is in defense of your 14 client, so -- Ms. Mandel is really trying to help your 15 client. 16 MR. GOLOMB: At the top it says, "one case." 17 That may or may not be, I don't even remember this 18 particular transaction and I worked -- the re-audit was 19 not performed by the auditor, but the auditor's 20 supervisor, who came to my office. 21 And her and I interacted. Now I will be 22 honest, I don't remember this transaction at all. 23 MR. HORTON: That's a good answer. 24 MS. MANDEL: Okay. 25 MR. HORTON: That's sufficient. 26 MR. GOLOMB: To be honest, I do not know if any 27 every these kind of transactions occurred during the 28 amnesty period. It was not brought to my attention by 30 1 the audit staff. 2 MR. HORTON: Well -- 3 MR. GOLOMB: But it ended up in the D & R. 4 MR. HORTON: Okay. Let's shift to the 5 Department and ask them to respond, if they can, 6 understandable that the liability was generated from a 7 different source. 8 We get that. 9 MR. HANKS: Mr. Horton, yes, we -- sorry for 10 the confusion. 11 What we can share is that the audit was 12 actually based on bank deposits. So, recordation of 13 bank deposits was recorded in the audit working papers 14 and adjustments were made to subtract for the nontaxable 15 repair. 16 MR. HORTON: And what did you reconcile the 17 bank deposits to? 18 MR. HANKS: The reconcil -- actually, to 19 reported sales. 20 MR. HORTON: Reported sales. 21 And, theoretically, reported sales were the red 22 book? Is that your -- from the taxpayer's perspective, 23 the appropriate taxable sales were the red book? 24 That's a question. 25 MS. YEE: Mr. Golomb? 26 MR. HORTON: Mr. Lawrence? 27 MR. LAWRENCE: Yes, sir, it is and there is a 28 portion in -- 31 1 MR. HORTON: Okay. 2 MR. LAWRENCE: -- the other book. 3 MR. HORTON: There is a portion in another 4 book? 5 MR. LAWRENCE: The exempt repairs that we 6 talked about. 7 MR. HORTON: And a portion of that is taxable, 8 from your perspective -- 9 MR. LAWRENCE: Well, if you use -- 10 MR. HORTON: -- the tax was collected? 11 MR. LAWRENCE: No. 12 MR. HORTON: I mean your client's perspective? 13 MR. LAWRENCE: From my client's perspective, 14 the red book reported all of the taxable sales. 15 There was another journal then which would 16 report the repair sales. 17 And the combined total would have been the sums 18 that would have been deposited into the bank. 19 MR. HORTON: Okay. Thank you. 20 MR. LAWRENCE: And all of that was turned over 21 then to the preparer, who then prepared the returns. 22 MR. HORTON: All right. Ms. Mandel? 23 MS. MANDEL: So, Mr. Hanks, where'd this stuff 24 come from in the D & R if it was all -- or you guys just 25 don't -- you don't know, aside from what it says in the 26 D & R, that there was just a note about one thing? 27 Yes, Mr. Kwee, if you know? 28 MR. KWEE: I can answer that. 32 1 We did an analysis of one quarter on an actual 2 basis. The quarter analyzed was the first quarter of 3 2003. And that's when they were noting the sales and in 4 that particular -- 5 MS. MANDEL: And that's outside the amnesty 6 eligible period? 7 MR. KWEE: Right, that test quarter is outside 8 the amnesty eligible period. 9 MS. MANDEL: And -- yeah, do you have any 10 thoughts? 11 MR. LEVINE: Yes. Petitioners said that they 12 did business the same way. I think the Department 13 regarded that this -- as to be the case and that's what 14 Petitioner said. 15 So, perhaps, we should have Mr. Kwee explain 16 that quarter. Because I think that quarter tells us a 17 lot -- which the Department should know about. 18 They did it on an actual basis, tells us about 19 how they did it. To me what's really critical is tax 20 reimbursement. If -- it's hard for me to believe sales 21 of small stones they would think are nontaxable, but 22 still if they -- 23 MS. MANDEL: If they collected tax 24 reimbursement. 25 But the way the D & R explained what Mr. Kwee 26 just found was like it was a mistake that he mistakenly 27 put it in the second journal, that if that -- 28 MR. LEVINE: That happened. 33 1 MS. MANDEL: -- wasn't like, you know, that 2 wasn't his normal practice. 3 And I'm trying to figure out reasonableness on 4 his normal practice and the amnesty penalty and making a 5 mistake and the magnitude of the mistake and -- I am 6 sorry for taking so much time. 7 MR. HORTON: No, please? 8 MR. HANKS: Ms. Mandel -- 9 MS. MANDEL: Yeah? 10 MR. HANKS: I think I can shed some -- some 11 light on that. 12 In the information we have got in the original 13 audit, it identifies that tax reimbursement was added to 14 all retail sales and the Petitioner reported amounts 15 from this red book. 16 The audit staff subsequently learned of the 17 existence of these other books that included repair 18 labor, fabrication labor and also, apparently, some 19 sales of other jewelry items, on which tax reimbursement 20 was charged. Those amounts were never reported. 21 What the audit staff did was to compare bank 22 deposits of approximately $2 million to reported amounts 23 of 500,000 and that's where the large, large 24 underreporting was -- was established. 25 MS. MANDEL: Right. But you can't segregate 26 the repair labor -- the stuff that wasn't collected? 27 All right, I'm sorry, I -- 28 MR. HANKS: We can -- we can do that, to the 34 1 extent that Petitioner took a deduction for repair 2 labor. So, we understand that the repair labor totaled 3 approximately $600,000 of the $2.2 million in recorded 4 sales. 5 Approximately 25 -- 6 MS. MANDEL: For the entire period, not just 7 the amnesty -- 8 MR. HANKS: Correct. 9 MS. MANDEL: -- eligible period? 10 MR. HANKS: Correct, the entire period. 11 MS. MANDEL: Yeah, we don't -- 12 MR. LEVINE: It still doesn't go -- 13 MR. HORTON: Maybe -- 14 MS. MANDEL: -- to the question of tax 15 reimbursement. 16 MR. HORTON: -- maybe if we take a look at 17 the -- Ms. Mandel, with your permission, maybe if we 18 take to look at the quarterly -- the quarter that was 19 tested? 20 In that test period you identified sales that 21 were going into -- I don't want to put words in your 22 mouth, but it appears that your testimony is that you 23 identified sales that were going into the red book and 24 sales that were going into the other book as well where 25 there was sales tax reimbursement on. 26 So, based on that test, you sort of impeached 27 the records and you concluded that the red book 28 reflected sales tax, but also in the other books there 35 1 was sales tax collected, but was recorded in the other 2 books. 3 And can you, based on that quarter, explain to 4 the Board what was the magnitude of that amount? 5 MR. KWEE: Yes. 6 MR. HORTON: Was it coincidental, accidental or 7 was it the basis of you now doing a -- reconciling the 8 bank statements? 9 MR. KWEE: Yes. And the quarter analyzed on an 10 actual basis was the first quarter of 2003. In that 11 quarter the red book had -- which was the reported 12 amount -- or 8,760 in measure, that was reported. 13 And then the recorded amount in all of the 14 books were 400 -- $46,578 -- $46,578.10 recorded. 15 So, in other words, that the Petitioner 16 reported 18.8 percent of recorded taxable sales. 17 And in that quarter also he -- 18 MR. HORTON: There we go. Keep going. 19 MR. KWEE: I'm sorry? 20 He recorded $35,331 in repair -- in repairs, 21 some of which were -- some of which were for fabrication 22 labor, some of which were for repairs. 23 MS. MANDEL: Okay. Well, all right. Let me 24 ask them just one more question on the -- a different 25 question on the finality penalty. 26 The D & R had, I think consistent with the 27 Board's published opinion in whatever it was -- pablo 28 something -- that Appeals had conditioned the relief of 36 1 the finality penalty, in their mind, on -- on payment of 2 the uncontested portion of the tax within 30 days of the 3 D & R. 4 And there was very -- sort of little payment. 5 And can you -- do you have an explanation for that of 6 why -- why? 7 MR. LAWRENCE: Unfortunately, I do. 8 MS. MANDEL: Okay. 9 MR. LAWRENCE: That's the economy. 10 MS. MANDEL: All right. 11 MR. LEVINE: Had Petitioner filed an RFR and 12 asked for an installment plan, we would have at least 13 considered it, I don't know what our answer would have 14 been, but I don't think we had any contact with them 15 objecting to our condition. 16 MR. LAWRENCE: I don't think that's accurate. 17 I think there was a payment plan. The plan was 18 for $500 a month, is my recollection. And I believe he 19 breached that plan because of his inability to pay even 20 that sum. 21 MS. MANDEL: Okay, thank you. 22 I am done. 23 MR. HORTON: Further discussion, Members? 24 MS. STEEL: I just have a question. 25 MR. HORTON: Ms. Steel. 26 MS. STEEL: Finality penalty here, that this 27 taxpayer paid $17,000, that was not quite enough, but he 28 paid. 37 1 You just gave me answer that if it was a 2 payment plan, then it's going to be okay. But if 3 there's other adjustments because of fraud penalty and 4 others, is that -- is that going to be credited to the 5 total tax amount or -- I still not getting it because 6 portion of the tax has been paid within 30 days. That's 7 not quite enough, but paid it. 8 So, how we going to adjust that? 9 MR. LEVINE: I'm not sure I follow. 10 Our recommendation for relief of the finality 11 penalty was a two part, that they pay all the conceded 12 amounts within 30 days -- 13 MS. STEEL: Has to be 100 percent? 14 MR. LEVINE: -- right. 15 What I was saying if -- petitioner may have had 16 a payment plan that they didn't succeed with, but we 17 never re-examined our recommendation because Petitioner 18 never asked us to. 19 As I say, I am not sure what our answer would 20 have been, but I think we would have certainly 21 considered following the same thing, that if you enter 22 into a payment plan and you complete it successfully, 23 for the conceded portion and then do the same for the 24 remainder, that -- I think we probably would have 25 accepted that. 26 But we were never asked. And as Petitioner 27 stated, they didn't complete the payment plan they 28 had. 38 1 MS. STEEL: So, is that $17,000 was random 2 number? 3 I'm just asking taxpayer. 4 MR. GOLOMB: I don't know. 5 To date they've made payments of $18,100, 6 that's what the summary says. 7 And those payments everybody made through the 8 payment plan. And, basically, they can't -- I think in 9 September they stopped making their $500 a month 10 payments because, basically, their business is 11 nonexistent. The downtown Tracy area has been hit very 12 hard. It's an older part of Tracy. 13 MS. STEEL: Okay. So, they were -- they had 14 Payment plan? 15 MR. GOLOMB: Yeah, just -- 16 MS. STEEL: They were paying it, Mr. Levine? 17 MR. GOLOMB: 500 a month. They made some lump 18 sum. 19 MS. STEEL: Mr. Kwee, we had a payment plan and 20 he was paying? 21 MR. KWEE: I believe that is correct that there 22 was a payment plan that eventually -- 23 MS. STEEL: Then finality penalty has to be 24 removed. 25 MR. KWEE: -- my understanding -- I believe the 26 payment plan was entered into before the Decision and 27 Recommendation because one of the accounts had gone 28 final. 39 1 And then that's what he made the majority of 2 the payments in before that Decision and Recommendation. 3 MS. STEEL: So, if there were -- Mr. Levine, 4 just give me a little answer here. 5 So, they were -- they had payment plan. So, 6 this taxpayer was making payments? 7 MR. GOLOMB: That is correct. 8 MS. STEEL: I am asking Mr. Levine. 9 MR. LEVINE: Well, I don't have that 10 information. 11 What I know is that sum was paid. But 12 certainly the Board can reconsider that, we were 13 trying -- 14 MS. STEEL: No, I just want to have answer that 15 they were payment plans been set and then this taxpayer 16 was making the payment plan, but payments. 17 Then finality penalty has to be removed, that's 18 what you just told me. 19 MR. LEVINE: No. The normal condition for 20 relief, if we didn't have any conceded portion, the 21 basic rule is you pay any conceded portion promptly and 22 then for any amount that is disputed that the Board 23 upholds, when the Board orders relief of the penalty -- 24 the finality penalty, it conditions it on timely payment 25 of the remainder, which is -- which is within 30 days. 26 We don't have a payment plan provision for -- 27 for the finality penalty. We do with the amnesty 28 penalty because of the nature of that penalty. The 40 1 amnesty provisions itself provided for a payment plan. 2 And, so, that's why we incorporated that into relief 3 for -- for amnesty. 4 For finality, the basic rule is pay it within 5 30 days. That's the basic rule, the Board can adjust 6 it. 7 MS. STEEL: Okay. So, pay it within 30 days or 8 set up the payment plan? 9 MR. LEVINE: Not with -- 10 MS. STEEL: Not for the original taxes? 11 MR. LEVINE: That's not -- 12 MS. STEEL: Is that what you're talking about? 13 MR. LEVINE: The basic rule for finality. 14 Finality is just a straight, pay it within 30 15 days, pay all of the conceded portion and then pay the 16 disputed portion that's upheld by the Board within 30 17 days. 18 MS. STEEL: Okay, pay all. 19 And what's disputed portion? I just don't 20 understand that. 21 MR. LEVINE: The disputed portion here is the 22 amnesty period, the -- 23 MS. STEEL: Those penalties? 24 MR. LEVINE: Well, the tax -- 25 MS. STEEL: So, the original has to be paid 26 within 30 days and all other penalties that you can -- 27 they can make a payment plan. 28 I mean -- 41 1 MR. LEVINE: The finality penalty would be only 2 conditioned on payment of tax. 3 MS. STEEL: Tax? 4 MR. LEVINE: Tax. 5 MS. STEEL: So, it has to be paid in full? 6 MR. LEVINE: Right. 7 MS. STEEL: And all other stuffs -- what's the 8 disputed? 9 I mean, I still don't know this part of the 10 laws, so, I am just asking you that. 11 So, this taxpayer has to pay within 30 days 12 finality penalty only, I am asking you? So, he had to 13 pay 100 percent of the tax amount and then disputed, you 14 are saying, means that other penalties, amnesty penalty 15 and others, that can be made by the payment plan? 16 MR. LEVINE: Just to be specific to this 17 taxpayer, what our recommendation was, which is just our 18 recommendation, the Board can change it, was that the 19 Petitioner pay the $23,000 of tax that was conceded 20 promptly after the D & R. So, a while ago. 21 And then the rest, to the extent it was upheld, 22 which is 18,000 in tax is protested, within 30 days of 23 the notice of the Board's decision. 24 That was what our -- what we recommended. 25 MS. MANDEL: I'm confused because I'm looking 26 at the front page -- I am sorry to interrupt, but you 27 say 18,000 of taxes left and my front -- 28 MR. LEVINE: Protested. 42 1 MS. MANDEL: -- yeah, but that -- by the math 2 on the front page, that's tax and penalty added 3 together. 4 MR. LEVINE: I'm just looking -- if you look on 5 the left side under "tax" -- 6 MS. MANDEL: I'm looking -- 7 MR. LEVINE: -- penalty is 14,000 disputed. 8 MS. MANDEL: Okay, I'm sorry, yeah. It's been 9 too long a morning -- yeah, okay. 10 So, the 18,332.50 is what you would say would 11 have to paid within 30 days of the final thing of the 12 Board? 13 MR. LEVINE: Well -- 14 MS. MANDEL: That's the tax. 15 MR. LEVINE: -- everything now. 16 If the Board were to -- 17 MS. MANDEL: If the Board were to relieve the 18 finality penalty, you would say for the finality penalty 19 that's the amount? 20 MR. LEVINE: We would recommend that if the 21 Board granted relief of the finality penalty it be 22 conditioned on payment of all tax. 23 MS. MANDEL: Which is the -- 24 MR. LEVINE: The tax within 30 days. 25 MS. MANDEL: Which is the 18,332.50? 26 MR. LEVINE: It's the -- 27 MS. MANDEL: Oh, plus the -- it's the 41,961. 28 MR. LEVINE: It's 61,000 total tax, less the 43 1 payments. So, it would be like 43,000. 2 MS. MANDEL: Okay, got it. 3 I think that's the number we were looking 4 for. 5 MS. STEEL: But, you know, I just want to make 6 this law clear. 7 So, for finality penalty, that what you are 8 saying is disputed amount it was $18,000 plus disputed 9 amount for addition to that total comes out 42,000. 10 So, if this taxpayer paid $18,000 plus other 11 disputed amount, if I misunderstood, please let me know, 12 that has to be set up the payment plan. 13 According to taxpayer that they already set the 14 payment plan. So, they were paying $500 each month or 15 whatever. 16 MR. LEVINE: Well, again the Board -- 17 MS. STEEL: So, I mean, I still don't get it. 18 MR. LEVINE: The Board -- this is discretionary 19 relief. The Board sets its own conditions. 20 We have a memo decision that gives us some 21 guidance. It's still discretionary. 22 We're going to follow the memo decision as 23 written, which is there's no payment plan. And the 24 reason is, as explained in the memo decision, is to put 25 a person who did not timely petition on equal footing 26 with a person who did, who has to pay all of the amount 27 due within 30 days. 28 MS. STEEL: How much is all the amount for him 44 1 at this point? 2 MR. LEVINE: The total tax is 64 -- 65,000 and 3 change. And they have paid 18,000. 4 MS. STEEL: Right. 5 MR. LEVINE: So, it would be another 47,000. 6 MS. STEEL: So, that 80,000 -- 60,000, whatever 7 you just gave amount, has to be all paid. 8 Then what's disputed amount at this time? 9 MR. LEVINE: The disputed amount of tax is 10 18,000. There's also penalty and interest. 11 MS. STEEL: So, okay. 12 So, $42,000 is the tax amount that he has to 13 pay 40 or 60, whatever you are -- we have too many 14 numbers here -- and then plus 18,000 is the disputed 15 amount that he can set up the payment plan. 16 Then if he did, then we can remove finality 17 penalty? 18 MR. LEVINE: You can remove -- 19 MS. STEEL: No, I'm just asking -- 20 MR. LEVINE: -- the penalty at your discretion. 21 MS. STEEL: -- you is that the regular -- 22 MR. LEVINE: What we would do is we would 23 not -- in our recommendation, we would not allow a 24 payment plan. 25 This was an unusual circumstance and we didn't 26 have the question on the conceded portion. But, 27 basically, we don't have payment plant -- we would not 28 -- our final recommendation for relief would not be 45 1 conditioned on payment plan, it would be always 2 conditioned on paying -- pay the full amount of tax 3 within 30 days of the final decision. 4 And that's how we would -- until the Board 5 tells us differently, that's how we always condition our 6 recommendations for relief of the finality penalty. 7 So, we wouldn't provide for a payment plan. 8 MS. STEEL: Okay, thank you. 9 MR. HORTON: Further discussion, Members? 10 MR. RUNNER: Quick question? 11 MR. HORTON: Mr. Runner? 12 MR. RUNNER: To the taxpayer representative, 13 is -- is Caldron Jewelers open for business today? 14 MR. LAWRENCE: I'm not sure. I think so, but I 15 think it's a storefront at the moment. 16 MR. RUNNER: Let me -- I don't mean could you 17 go down and buy something today, I mean, are they still 18 in operation? 19 MR. LAWRENCE: They're still open, but the 20 proprietor had to go get another job to make ends meet. 21 I don't know who is staffing it or what hours 22 they are keeping. All I know is the last I spoke with 23 the taxpayer, he's working elsewhere to try to keep 24 things going. 25 MR. RUNNER: But the store is open and taking 26 on customers, people coming in and out? 27 MR. LAWRENCE: I think it's still there, yes. 28 MR. RUNNER: Okay, thank you. 46 1 MR. HORTON: Further discussion, Members? 2 Is there a motion? 3 MS. YEE: Take it under submission. 4 MR. HORTON: It's been moved by Ms. Yee to take 5 it under submission. Second by Mr. Runner. 6 Without objection, such will be the order. 7 MR. GOLOMB: Thank you. 8 MR. LAWRENCE: Thank you. 9 MR. HORTON: Our next matter, Ms. Olson? 10 MS. OLSON: Our next matter is C -- 11 MR. HORTON: My apologies, sir. 12 The Board will take your matter up for 13 discussion later on today and we'll send you a written 14 report of your decision. 15 MR. LAWRENCE: Thank you very much. 16 ---o0o--- 17 18 19 20 21 22 23 24 25 26 27 28 47 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 23, 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 47 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: March 6, 2011 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 48