1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 MARCH 22, 2011 10 CORPORATE FRANCHISE AND PERSONAL INCOME TAX HEARING 11 APPEAL OF 12 AURELIO SERRANO AND HAIDEE SERRANO 13 NO. 519860 14 AGAINST PROPOSED ASSESSMENT OF 15 ADDITIONAL INCOME TAX 16 17 18 19 20 21 22 23 24 Reported by: Juli Price Jackson 25 CSR No. 5214 26 27 28 1 1 P R E S E N T 2 For the Board Jerome E. Horton of Equalization: Chair 3 Michelle Steel 4 Vice-Chairwoman 5 Betty T. Yee Member 6 George Runner 7 Member 8 Marcy Jo Mandel Appearing for John 9 Chiang, State Controller (per Government Code 10 Section 7.9) 11 Diane G. Olson Chief 12 Board Proceedings Division 13 14 For Board of Anthony Epolite Equalization Staff: Tax Counsel 15 16 17 For Franchise Tax Jane Perez Board: Tax Counsel 18 Suzanne Small 19 Tax Counsel 20 For Appellants: Amber Bridges Representative 21 Haidee Serrano 22 Taxpayer 23 Aurelio Serrano Taxpayer 24 25 26 ---oOo--- 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 MARCH 22, 2011 4 ---oOo--- 5 MS. OLSON: The next item is an oral hearing. 6 It's B7, Aurelio Serrano and Haidee Serrano. 7 Please come forward. 8 MR. HORTON: As they come, Mr. Epolite, will 9 you please introduce issue in the case? 10 MR. EPOLITE: Good afternoon, Chairman Horton, 11 Members of the Board. 12 The issue before the Board in this matter is 13 whether Appellants have demonstrated error in the 14 assessment. 15 MR. HORTON: To the taxpayer, you will have ten 16 minutes to make your presentation, commencing with the 17 introduction. 18 Franchise Tax Board would then have ten minutes 19 and then we'll grant you five minutes for rebuttal. 20 Commence with your introduction. 21 MS. BRIDGES: Good afternoon. I'm Amber 22 Bridges with the Tax Appeals Assistance Program. And I 23 represent Mr. and Mrs. Serrano in their appeal for the 24 tax year 2005. 25 MS. SERRANO: Yeah, I'm Mrs. Serrano. 26 Go ahead. 27 MR. SERRANO: Hello, my name is Aurelio 28 Serrano. 3 1 And I am -- 2 MS. BRIDGES: And now this -- oh, sorry. 3 MR. HORTON: Go right ahead. 4 MS. BRIDGES: The Serranos are going to explain 5 in their own words what happened and why the third 6 amended tax return filed on August 10th, 2009 is 7 correct. 8 Go ahead. 9 MR. SERRANO: Actually, what I -- I did in 10 2005, I sold some of my property and we went into the 11 tax -- where we make that taxes. I think what they did, 12 they mess up our paperwork, which is -- I don't know 13 anything about it. And I think what we did -- what I 14 did, I think, paid -- overpaid the federal and I don't 15 pay enough to the State. 16 That's what I think we got in this situation 17 right now. 18 MR. HORTON: Thank you, sir. 19 MS. BRIDGES: So, for the first three returns 20 that were filed, those were incorrect because the 21 preparers -- they didn't have the correct information. 22 But they are contending that the final amended 23 return is correct. 24 And they did just submit -- they found their W2 25 showing the withholdings of over $1,000, the California 26 State withholdings. 27 MR. HORTON: Okay. 28 MS. SERRANO: Well, also this -- the statement, 4 1 we -- 2 MR. HORTON: Come a little closer. 3 MS. SERRANO: Yeah, a statement from the bank 4 that -- saying that we paid the 21,579, I believe, yeah. 5 So, I don't know if you need the cashier's 6 check? We can get that, you know this afternoon they 7 told us, yeah. 8 So, I mean, we did our taxes and, you know, we 9 did you what -- you know, we always been, you know, 10 doing our taxes always, you know, early. 11 And then this happened to us. I mean, you 12 know, it's just -- we didn't have -- I guess the 13 taxpayer didn't know, you know, what they were doing, 14 you know. So, they would have told to us to pay back 15 then, we would have paid, you know, because we had the 16 money back then. 17 MR. HORTON: Okay. 18 MS. SERRANO: Yeah. 19 MR. HORTON: Thank you. 20 Any further testimony? 21 MS. BRIDGES: One final -- just, I know it's in 22 the amended return, but the one that is true, the third 23 amended return, it shows a balance due of $7,682 for the 24 tax year 2005. 25 MR. HORTON: Okay. We will return to allow you 26 an opportunity to rebut. 27 Franchise Tax Board, please commence the 28 introduction and your testimony. 5 1 MS. PEREZ: Good afternoon. 2 MR. HORTON: Good afternoon. 3 MS. PEREZ: My name is Jane Perez and I 4 represent the Franchise Tax Board in this appeal. 5 With me is Suzanne Small of the Franchise Tax 6 Board Legal Division. 7 The issue in this appeal is whether Appellants 8 properly reported all their income for the 2005 tax 9 return and whether there are any additional deductions 10 or income adjustments to be made. 11 The Appellants timely filed the return and 12 received the refund they requested on that return. 13 Subsequently, Respondent reviewed the return and 14 determined that Appellants had made an incorrect 15 Schedule CA capital gain adjustment for a little over 16 $140,000. 17 Respondent sent a Notice of Proposed Assessment 18 to the taxpayers, including that adjustment. In 19 response to that the Appellants ultimately filed three 20 amended returns. 21 Appellants now agree that the first two amended 22 returns contained errors. So, they are no longer at 23 issue. So -- and Appellants also concur that the 24 $140,000 capital gain adjustment was an incorrect 25 adjustment on the original return. So, that amount is 26 taxable income. 27 So, the remaining issue before your Board is 28 whether the additional adjustments on this third amended 6 1 return are correct. 2 Appellants -- the three adjusted -- first, 3 Appellants are claiming a reduction in their federal AGI 4 of $21,323. 5 Respondent reviewed a copy of Appellants' 6 federal account transcript. This transcript indicates 7 that the IRS denied Appellants' claim for refund and did 8 not make any to their original federal tax return. 9 Without additional substantiation of what 10 Appellants' AGI reduction is comprised of and 11 documentation to show that the adjustment's correct, 12 Respondent cannot make any adjustment to allow an AGI 13 adjustment. 14 Second, Appellants are requesting an additional 15 adjustment to their California taxes paid to increase 16 their State tax adjustment to $1160. Appellants claimed 17 that this is the amount that was withheld on their W2 18 and the W2 submitted shows that amount. 19 However, as Respondent pointed out in our 20 letter in November of 2009, the adjustment on the 21 taxpayer's return for State income tax as paid is for 22 the tax -- state income to refunded to a taxpayer during 23 the year and is not the amount of taxes withheld. 24 Accordingly, according to Appellants' records, 25 we refunded Appellants $516 in 2005. And that is the 26 amount that was originally claimed by taxpayers and 27 that's the proper amount to be used on their 2005 28 return. Therefore, that request for additional 7 1 adjustment should be denied. 2 Finally, Appellants claimed additional itemized 3 deductions in the amount of $12,614 on the third amended 4 return. 5 Respondent asked for supporting documentation 6 for this adjustment and, to date, Appellants have 7 provided no explanation or documents to support this 8 deduction. 9 A review of the federal transcript shows that 10 the IRS did not allow any additional itemized deductions 11 above those claimed on the original return. 12 Therefore, without additional information and 13 documentation from Appellants, Respondent cannot allow 14 the increase in itemized deductions. 15 And as far as the $21,000 check that Appellants 16 provided today, that was actually a check made out to 17 the Internal Revenue Service. And in the documentation 18 they provided there is actually a copy on the second 19 page of their federal transcript showing that payment of 20 $21,579.16. So, that was not made to the Franchise Tax 21 Board, but the Internal Revenue Service, which is a 22 common mistake. 23 Thank you. If you have any questions, I'd be 24 happy to answer them. 25 MR. HORTON: Okay. You have five minutes on 26 rebuttal. 27 MS. BRIDGES: Well, we're asking that if you 28 believe the testimony of my clients that you will rule 8 1 in their favor that their 2005 third amended tax return 2 is correct and the amount stated on there is the amount 3 that they owe for taxes in 2005. 4 MR. SERRANO: Yes, yes. 5 MR. HORTON: Sir? 6 MS. BRIDGES: Go ahead. 7 MR. SERRANO: Actually, the capital gains that 8 year, when I -- when I did some money on it, that was -- 9 it wasn't 140,000. They charged me for 140,00 on taxes, 10 but I only made like 105. 11 So, what was -- I don't know what was the deal 12 on that. But I think I'm overpaid somebody else and 13 didn't pay enough to the State. 14 That's my -- 15 MR. HORTON: Okay, thank you very much. Thank 16 you for your presentations. 17 Members, are there any questions? 18 Ms. Steel? 19 MS. STEEL: I am little confused here that 20 there is two issues, one that $21,000 -- that $25,000, 21 that's already done deal and now additional deduction of 22 $12,000. 23 And Franchise Tax Board asking documentations 24 for that, then, you know, this taxpayer is going to be 25 okay. 26 Is there any documentation about that 27 additional deduction, the job explained by the taxpayer 28 that it was job expenses? 9 1 MS. PEREZ: We do not have any -- any 2 documentation for that. 3 No, I'm sorry. 4 MS. STEEL: But they understood that $21,000 5 that was made out to IRS, not Franchise Tax Board. So, 6 you still owe that. 7 That's all my questions here. 8 MR. HORTON: Okay. Further discussion, 9 Members? 10 Hearing none, is there a motion? 11 MS. YEE: Move to take the matter under 12 submission. 13 MR. HORTON: Moved by -- 14 MS. STEEL: Second. 15 MR. HORTON: -- Ms. Yee, second by Ms. Steel 16 to take the matter under submission. 17 Without objection, Members, such will be the 18 order. 19 We will take your matter up later on this 20 evening and send you a written notice of our decision. 21 Thank you so very much for coming out today. 22 MS. SERRANO: Thank you. 23 MS. BRIDGES: Thank you. 24 MR. SERRANO: Thank you very much. 25 MS. YEE: Thank you. 26 ---o0o--- 27 28 10 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 MARCH 22, 2011 I recorded verbatim, in shorthand, to the 10 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 10 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: APRIL 5, 2011 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 11