BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 5901 Green Valley Circle, Room 207 Culver City, California REPORTER'S TRANSCRIPT JUNE 22, 2011 ITEM B18 FRANCHISE AND PERSONAL INCOME TAX HEARING APPEAL OF RICHARD PALMQUIST (No. 526815) AGAINST PROPOSED ASSESSMENT OF ADDITIONAL TAX Reported by: Beverly D. Toms CSR No. 1662 1 1 2 P R E S E N T 3 For the Board Jerome E. Horton of Equalization: Chairman 4 Michelle Steel 5 Vice-Chairwoman 6 Betty T. Yee Member 7 George Runner 8 Member 9 Marcy Jo Mandel 10 Appearing for John Chiang State Controller 11 (per Government Code Section 7.9) 12 13 Diane Olson, Chief Board Proceedings Division 14 15 For Board of Lou Ambrose Equalization Staff: Appeals Division 16 17 For Franchise Tax Jaclyn Appleby Board: Tax Counsel 18 Diane Ewing 19 Tax Counsel 20 For Appellant: Amber Bridges 21 Representative 22 Richard Palmquist Taxpayer 23 24 ---oOo--- 25 26 27 28 2 1 Culver City, California 2 June 22, 2011 3 ---oOo--- 4 MR. HORTON: Our next item, please. 5 MS. OLSON: Our next item is B18, Richard 6 Palmquist. Please come forward. 7 MR. HORTON: As he comes, Mr. Ambrose, will you 8 please introduce the issues in this case. 9 MR. AMBROSE: Good morning, Mr. Chairman, 10 Members of the Board, the issue before the Board in this 11 case is whether the Appellant has established error in 12 Respondent's proposed assessment, which is based on a 13 Federal determination. 14 MR. HORTON: Thank you very much. Would the 15 appellant please introduce herself for the record. You 16 have ten minutes to make your presentation. 17 MS. BRIDGES: Good morning, Mr. Chairman and 18 Members of the Board. I'm Amber Bridges from the Tax 19 Appeals Assistance Program and I am Mr. Palmquist's 20 representative in his appeal for the year 2005. 21 I'm going to give a brief overview of 22 Mr. Palmquist's -- 23 MR. HORTON: Well, could -- 24 MS. BRIDGES: Oh, sorry. 25 MR. HORTON: Just for the record, could 26 Mr. Palmquist please introduce himself. 27 MR. PALMQUIST: I'm Richard Palmquist from 28 Nipomo, California. 3 1 MR. HORTON: Thank you, sir. 2 MS. BRIDGES: Okay. I'm going to give a brief 3 overview of Mr. Palmquist's position in his appeal and 4 then Mr. Palmquist will elaborate and give his testimony 5 for the remainder of our opening statement. 6 As previously stated in the appellant's appeal 7 letter, opening brief and reply brief, Mr. Palmquist 8 maintains that his payment to the IRS of $2,000 -- 9 $22,000 is not an admission of additional taxes owed for 10 2005. And the IRS assessment was incorrect for his 2005 11 taxes. 12 This payment was due -- was made during a time 13 of extreme stress in Mr. Palmquist's life because his 14 wife was undergoing open heart surgery and he was 15 subjected to what he viewed as unjust treatment by the 16 IRS. 17 He subsequently did not file an amended State 18 tax return for 2005 with the Franchise Tax Board because 19 he relied on the professional expertise of an enrolled 20 agent -- agent that was working for his C.P.A. 21 Now Mr. Palmquist will elaborate and tell you 22 exactly what happened to his 2005 taxes and why he's 23 appealing the FTB's assessment. 24 MR. PALMQUIST: I think it's very important in 25 the broad context to recognize there are two kinds of 26 government in the world, totalitarian government of man 27 and a government governed by law, and we should all be 28 very grateful that we are governed by law and not by 4 1 man. And yet there are still manifest difficulties in 2 reaching fairness even under law. And of course that 3 explains the existence of this Board. You are elected 4 representatives of the people to see that the right 5 thing is done. Not just that the law is followed but 6 that the right thing is done. 7 Having said that, I was dealt with in 8 retrospect more than unfairly and in my opinion I was 9 dealt with in a criminal manner by an appeals agent of 10 the Internal Revenue Service, whose malfeasance caused 11 me not to be able to apply true and applicable losses 12 for the year -- the years under scrutiny here, 2002 13 through 2005 that should have eliminated the need for an 14 appeal. There should have been no -- no -- under the 15 audit there should have been no deficiency. 16 Instead, knowing that his take on the case was 17 wrong Mr. Covius (phonetic), the Chief Auditor of the 18 Santa Maria, California office of the Internal Revenue 19 Service turned to me at a time when he and I were alone 20 in the conference room and he said, "I am going to be 21 using a method here that I believe your son," who's an 22 eminent C.P.A. in -- my son is an eminent C.P.A. in 23 Montecito -- he said, "I think your son will find a 24 different way of attributing this." 25 At base what was happening is that the IRS 26 auditor took an income of roughly $13,000 for the year 27 of 2002 and attributed it under an accrual method -- 28 unjustified accrual method as being $165,000 received in 5 1 2002, which simply wasn't true, and his change from -- 2 under my reading of IRS rules later on, his -- his 3 arbitrary change of our method of -- of accounting from 4 cash to accrual is not something -- was not something 5 within his authority and yet his authority, in his view, 6 was supreme and he did it. 7 Now, the question can legitimately be asked why 8 did we not file with the State the results of the audit 9 and the audit appeal. That's a legitimate question. 10 The reason that was not done is that Wendy Coggins, the 11 enrolled agent working for my son's C.P.A. firm, told me 12 overtly that in her professional opinion it was not 13 necessary to file a report with the State of California. 14 Now, in retrospect it's easy for even me to 15 look at her judgment and to say it was wrong. 16 Nevertheless at the time I had no choice. She worked 17 for my son and she's an enrolled agent, which is a role 18 not even my son, as the head of that office, by 19 choice -- he's not an enrolled agent. 20 And so what were we to do? Well, I had to give 21 good faith reliance to Wendy Coggins' judgment and -- 22 and thus go along with her and not argue the point. 23 Now, the -- the bottom line here is that in my 24 view of -- of a person -- persons in your position 25 looking only at the regulations would say, well, you 26 acceded to a deficiency to the IRS and therefore you owe 27 the State a certain percentage based upon the amount of 28 that deficiency. And I could understand fully your 6 1 coming to that conclusion. 2 Based, though, if you knew all of the facts, if 3 you were fully acquainted with all of the tremendous 4 complexities of the facts in this matter I believe you 5 would find that I was wrongly assessed in the 2002 6 through 2005 matter and furthermore that my son's C.P.A. 7 firm made an error in filing a correction to that audit 8 by not including all the years 2002 through 2005. 9 I argue that that be done, and the reason for 10 my argument on that score is that the Kim -- Kim 11 Bodner -- her name is -- I'm not sure about Kim, but the 12 the audit appeals office here in Irvine, California, for 13 the IRS, Ms. Bodner, got me to accede to what she called 14 a glom of years. She made an exception and included all 15 the facts regarding 2002 through 2005 as -- as if they 16 were for one year. And that's not exactly -- exactly 17 accurate, either. But she by her terminology glommed 18 those years together. 19 Well, it would seem to me that if the years are 20 glommed in the audit appeal they should also have been 21 glommed in the correction action my son's C.P.A. firm 22 took. But instead my C.P.A. son, a very careful C.P.A., 23 observed the statute of limitations at the time of the 24 filing of the correction and did not take into account 25 all of the figures for all of the years and instead 26 gained for us only a minuscule tiny fraction of a return 27 on what was wrong -- what had been wrongfully paid. 28 I feel helpless in fighting the IRS, but I do 7 1 not feel helpless in explaining to you this predicament 2 and asking you for grace as you seek to apply the 3 regulations. 4 MR. HORTON: Thank you very much for your 5 presentation. 6 MR. PALMQUIST: Oh, I'd be happy to answer any 7 questions. 8 MR. HORTON: Yes, sir. We will return to you 9 on rebuttal and then open it up for discussions at that 10 time. The Members may or may not have questions. 11 Would the Department please introduce 12 yourselves for the record. You have ten minutes to make 13 your presentation. 14 MS. APPLEBY: Thank you. Good morning, Mr. 15 Chairman, Members of the Board. My name is Jaclyn 16 Appleby, and with me this morning is Diane Ewing, and we 17 represent the Franchise Tax Board in this appeal. 18 The Appellant in this case filed a timely 2005 19 California tax return. Subsequently the Franchise Tax 20 Board received information from the IRS which indicated 21 that the appellant had filed two amended returns which 22 increased his Federal adjusted gross income by over 23 $130,000. 24 Based on this Federal information the Franchise 25 Tax Board made the applicable adjustments to appellant's 26 adjusted gross income and proposed an additional tax 27 liability of $7,467. 28 On appeal the Franchise Tax Board determined 8 1 that additional Federal adjustments beyond the offered 2 adjustment of appellant's Federal AGI had been made 3 pursuant to the filing of appellant's amended returns, 4 therefore respondent modified its proposed assessment to 5 reflect those changes. 6 The current amount of the proposed assessment 7 on appeal is $4,480 plus applicable interest. 8 Appellant submitted a copy of the second 9 amended return which he submitted to the IRS, which 10 downwardly adjusted appellant's AGI by $3,106 for pass 11 through losses from his partnership as well as $12,645 12 for a net operating loss carryover from the partnership. 13 When the IRS processed this amended return they 14 allowed the pass through loss of 3106 but they did not 15 allow the net operating loss carryover. 16 As a result of those changes the IRS concluded 17 that Appellant's AGI for the 2005 tax year was $141,995. 18 The Franchise Tax Board's revised proposed 19 assessment is based upon that Federal AGI. 20 The Franchise Tax Board has reviewed 21 appellant's Federal adjust -- Federal account transcript 22 and the IRS has not made any subsequent additional 23 revisions. 24 The appellant has asserted that Federal 25 adjust -- the Federal adjustments upon which the 26 Franchise Tax Board's proposed assessment is based are 27 erroneous because appellant was given incorrect advice 28 by the Internal Revenue Service when filing his amended 9 1 returns. 2 Appellant has indicated that the Internal 3 Revenue Service instructed him to include installment 4 sale income that appellant and his business received in 5 2002, 2003 and 2004 on his 2005 amended return, but he 6 was not advised that he could offset Truth Radio's 7 income with its losses. 8 Despite the Franchise Tax Board's request for 9 additional information to substantiate his position 10 appellant has not provided any documentation or 11 substantiation that would allow the Franchise Tax Board 12 to evaluate the Federal adjustments for error. 13 As such, Appellant has not met his burden of 14 showing that the Federal adjustments are incorrect and 15 that the Franchise Tax Board's determination based on 16 those Federal adjustments is incorrect. 17 As a result the Franchise Tax Board's proposed 18 assessment as modified on appeal should be sustained. 19 Thank you. 20 MR. HORTON: Thank you very much for your 21 presentation. 22 On rebuttal, please. 23 MR. PALMQUIST: Well, I have a couple of 24 observations. The year mentioned by the Franchise Tax 25 Board is 2005, which I interpret as meaning the result 26 of all of the accounting for 2002 through 2005. And to 27 sit here I have the impulse of wishing to ask my son, 28 who is not here, and frankly should be here, for a 10 1 reason I'll explain later -- I would like to know why if 2 2005 is a pivotal year, why somehow that year was beyond 3 the reach of the statute of limitations because it's my 4 understanding that it was the year 2002 where the -- the 5 major fault took place, and it was that year that was 6 beyond the statute of limitations which minimalized the 7 amount of correction that could be made by the -- the 8 filing of the corrected return. 9 The reason my son is not here is that he has a 10 conflict of interest in this matter. The tension 11 surrounding the audit and the audit appeal in confluence 12 with my wife's open heart surgery -- incidentally, let 13 me give you a footnote here. The most stressful day of 14 my life was the day when Chris Bodner refused the appeal 15 of my attorney to set off the date when the documents 16 having to do with the audit appeal had to be signed. 17 As a result, on the day after her open heart 18 surgery I had to go into the intensive care unit of 19 Fresno Heart Hospital and put before my then wife IRS 20 documents which were extremely stressful to her in that 21 she knew in great detail the wrong that had been done to 22 us by Mr. Crovius. And I was an emotional basket case 23 that day because of the need to do that act. I did it, 24 nonetheless, because I was told by Bodner that if I 25 didn't do it she would open up a whole basket of 26 additional assessments and we'd be in even greater 27 trouble than -- in other words, what I'm telling you is 28 my wife was forced by the Internal Revenue Service to 11 1 file papers in the matter of the appeal under duress. 2 The entire matter before us here as it relates to the 3 Internal Revenue Service is an act of acquisition under 4 duress. 5 Going on, the reason my son is not here is that 6 he became his mother's advocate in a divorce -- a very 7 bitter divorce that took about 14 months to resolve, 8 which in large degree -- divorce is a very complex issue 9 always, but to a large degree the -- the wrongful 10 activities of the Internal Revenue Service are at least 11 a contributing factor to that tragedy in our -- our 12 home. 13 And my son ultimately -- if you find for the 14 Franchise Tax Board, my son ultimately, of course, 15 will -- will be forced on -- on -- under the terms of 16 the divorce to pay half of whatever is assessed here. 17 But, nevertheless, he chose not to come because 18 he knows that if he came his firm would be found to be 19 defenseless in terms of the claims I'm making about 20 their having made mistakes. 21 I'm not the expert so I don't really have the 22 forensic authority to say they made mistakes, but in my 23 opinion his firm did make substantive -- the substantive 24 mistake of not refiling for the years 2002 through 2005 25 rather than acquiescing to their concept of the statute 26 of limitations. 27 And I -- this is very significant, what we're 28 hearing from the Franchise Tax Board today, that the -- 12 1 their view is that this assessment was relevant to the 2 year 2005 because this -- the -- the -- the mistake -- 3 the change from cash accounting to accrual accounting 4 that caused the very root error to be made related to 5 the year 2002, not 2005. 6 I'm -- I'm not sure I'm making myself clear but 7 I'll be happy to answer any other questions. 8 MR. HORTON: Thank you very much. Any other 9 testimony? 10 MS. BRIDGES: I just -- I do want to reiterate 11 the fact -- what Mr. Palmquist said about his son 12 refusing to cooperate, I called him. He did not return 13 my phone calls and I feel like we would be able to 14 present much more if his son was here. But he would not 15 cooperate. 16 MR. PALMQUIST: He -- he has all these facts 17 that I claim to be deficient in delivering. 18 MR. HORTON: I'm going to ask the Department to 19 respond to the taxpayer's concern about the statute of 20 limitation. 21 MS. APPLEBY: Our information indicates that 22 all of the changes that were made to appellant's Federal 23 account were made in 2005. Both of the amended returns 24 that -- that are appearing on appellant's Federal 25 account transcript are 2005 amended returns and they 26 both indicate an income of a hundred -- I'm sorry, an 27 AGI of 145 and 141 respectively. 28 So we do not have any information that the IRS 13 1 made adjustments to the 2002 through 2004 tax years or 2 that they were at issue. We just don't have that 3 information. 4 MR. HORTON: Thank you very much. Discussion, 5 Members. 6 MS. MANDEL: Yeah, I had a question. 7 MR. HORTON: Ms. Mandel. 8 MS. MANDEL: I'm going to try to piece together 9 from what I heard what sounds like the allegation is 10 that IRS did. I don't know what kind of -- I mean, I 11 guess -- I don't want to call you Ms. Amber -- Ms. 12 Bridges, you've talked with Mr. Palmquist about what 13 kind of documents he might still have from IRS, but from 14 what I've heard the tax year at issue is the 2005 year. 15 From the way Mr. Palmquist described IRS making a change 16 from cash to accrual, from hearing that there was 17 installment sale income from 2002, '3 and '4 that 18 somehow -- that the allegation was in the original 19 papers that that wound up in 2005 -- and I'll get to the 20 statute of limitations thing that you've mentioned about 21 your -- your son in filing the amended returns -- it 22 could be -- you know, on the cash to accrual I don't 23 know what was open before IRS. But IRS sometimes does 24 things slightly differently than I've frankly ever seen 25 FTB do. 26 Sometimes what they will do if it's a -- if 27 it's an entirety of a transaction and some of the years 28 are not open for IRS but that they recognize it's an 14 1 entirety of a transaction, often you saw it like in 2 straddles where the year where the taxpayer would get a 3 refund is closed and the year where the taxpayer has a 4 deficiency is open they'll -- they'll run the numbers -- 5 or at least they used to do it this way -- they would 6 run the numbers for the closed year and then they'd 7 make -- they'd make an adjustment in what they're asking 8 for in the open year to account for what they couldn't 9 do in the closed year. 10 And if they -- if they'd made an adjustment 11 from cash to accrual and said, hey, you shouldn't 12 have -- you shouldn't get that income in the earlier 13 years where you claimed it on your return, which is what 14 it sounds like -- I don't know because I haven't seen 15 the IRS papers -- but if -- if the returns for '2 -- 16 '02, '03 and '04 actually reported installment income 17 that IRS thought should have been done on some kind of 18 other basis in '05 -- you know, I don't know. I don't 19 know if that's what they did. They might have been 20 making an overall adjustment, what he referred to as 21 glomming all the years in one year -- they might have 22 made an overall adjustment in 2005 somehow to account 23 for years that they couldn't go back and reach or -- 24 which would have been sort of favorable to him if they, 25 you know, took income that was recognized in those years 26 and moved it somewhere else. 27 They might have done that. I -- I don't know 28 what you can tell from the papers. And -- and if -- if 15 1 there were corresponding deductions of some kind that 2 have been claimed in the earlier years that -- that -- 3 that, you know, should have gone into the later years, 4 you know, I -- I don't know. It sounds like what the 5 son may have done is said, well, if there were 6 corresponding deductions that adjustment would have made 7 in '02 and I can't do that because the statute's gone 8 for '02, so I can't make the adjustment. 9 But what I'm kind of wondering is if -- if what 10 IRS did, whether it was under -- you know, of whether 11 they made -- then maybe they just made a 481 adjustment, 12 which is -- you know, where you -- you look back at all 13 the years that -- that something was done a certain way 14 when you're changing the accounting method and then you 15 figure it all out and you dump it in the first open 16 year. 17 I don't -- I don't know what they did but if 18 they did some kind of adjustment like that and didn't 19 account for the other side of the equation that if you 20 were making that accounting change you would, then -- 21 you know, then -- but that depends on what the documents 22 are. And -- and then what other documents Mr. Palmquist 23 would have as to whether there were things claimed in 24 '02, '3 and '4 that would factor into that adjustment 25 for '05. And I don't know if he, himself, has any -- 26 any of the material or if everything is in the hands of 27 the son's C.P.A. firm. 28 And if everything is in the hands of the son's 16 1 C.P.A. firm and they're Mr. Palmquist's records, he has 2 some entitlement to it, but do you -- 3 MR. PALMQUIST: Well, your point's well taken. 4 Yeah. 5 MS. MANDEL: Do you -- do you have any idea -- 6 MR. PALMQUIST: But I -- I can partially 7 clarify -- pardon me. 8 MS. MANDEL: I -- well, let me -- let me just, 9 do you -- about what kind of records there might -- 10 because that's what they're missing is being able to see 11 what it is that -- what's really underlying the 12 adjustment that IRS -- 13 MS. BRIDGES: Yes. 14 MS. MANDEL: -- or whether you can even get the 15 documents from IRS. I don't know how old this is. 16 MS. BRIDGES: Yes, because it -- I know it -- 17 occurred in 2007. I do believe that's correct, they are 18 trying to account for the -- the income from that 19 installment amount sale from 2002, 2003, 2004 and they 20 did glom it together in 2005. And, yes, we probably 21 could -- maybe the IRS, maybe get some of that 22 information, what they did. 23 But I -- I do believe they're trying to account 24 for that income, and so it just -- it ended up in the 25 2005 return. 26 MS. YEE: Okay. 27 MR. PALMQUIST: I believe I can clarify the 28 concerns here expressing insofar as they don't reach the 17 1 technicalities having to do with the IRS. 2 The -- the narrative here begins with the sale 3 of a commercial building located in Delano, California, 4 where formerly my radio station resided. 5 The contract of sale was tentatively begun 6 about in August or September of 2002 when I received a 7 $10,000 earnest money check from the potential buyer. 8 And we weren't sure right then what the nature of the 9 $10,000 was. It became the down payment on a $165,000 10 contract of sale reaching over 60 months. And because 11 we just didn't know this buyer and because we were 12 unsure of his capability of establishing a viable 13 business, and because of all the uncertainties we 14 recorded in the contract of sale that all monies 15 received from him would go into suspense until the 16 contract was entirely completed, at which time we would 17 pay taxes based upon the nature of the money received. 18 As I sit before you the contract has still not been 19 completed. It is still all up in the air. I still am 20 the recorded -- I, personally, am the recorded owner of 21 that property. 22 Though he made 60 payments, as agreed, he 23 failed in his duty in the contract in other matters that 24 is -- has been litigated and -- and is too complex for 25 us to discuss here. 26 But the -- the point is that when the auditor 27 first came to our home he asked -- he was in our home 28 for the purpose of auditing my business, the Truth Radio 18 1 business. 2 He immediately saw upon just glancing at the 3 books for Truth Radio that this was a dry hole, and he 4 told his associate who was with him that we're wasting 5 our time here because he saw that there was a $65,000 6 loss applicable to the year 2002 and he clearly observed 7 the legitimacy of that loss. 8 Then he went into a questioning mode in which 9 you did a fishing exposition -- expedition and learned 10 of the existence of the contract of sale. 11 I explained to him that the contract of sale 12 caused the monies received to be put into suspense. He 13 said, "No, we don't allow that. That cant be done that 14 way. You're going to have to come down to the office 15 and bring all your documents and we're going to redo 16 this." 17 I cooperated fully. I brought him his -- the 18 documents and it was in that session that he confessed 19 to me that he was going to do something wrong, and that 20 he felt that my son might have a different opinion 21 than -- and it was at that point that he -- I later 22 learned that he -- without justification I think if -- I 23 think if the IRS rules are today as they have -- as they 24 were about three years ago when I researched this, there 25 is no way that an auditor, an official of the IRS or 26 anyone else can change your method of accounting other 27 than the taxpayer. And we had never changed -- we had 28 always done our accounting based on a -- on a cash 19 1 basis. He arbitrarily changed us to accrual basis and 2 for the year 2002 the actual money we received to the 3 best of my recollection was one monthly payment of 4 $3,000 for the year -- for the month of December, plus 5 the 10,000 down payment, or $13,000 for 2002. 6 He applied to 2002 the receipt of $165,000, 7 which under the terms of the contract we might never 8 have seen a dime more of it, as of the beginning of 9 2003. Who knows -- who would know back then whether we 10 were going to receive any more payments. 11 So, he -- he completely wronged us in the way 12 he handled that. And -- and there was -- I could pay no 13 attention to this when it was going down because my 14 wife's health was 120 percent of my attention and her -- 15 her health issues were so profoundly complex and so 16 aggravating that -- that there -- I just had to depend 17 upon my attorney and -- and the appeals attorney for the 18 IRS to try to unravel this. 19 And my attorney did his best, but he's not a 20 tax attorney. He's a -- a friend and -- and who knows 21 whether someone else could have done better. 22 But the -- the point is that we were wronged by 23 the Internal Revenue Service and -- and in my opinion -- 24 you have no authority over him, but in my opinion 25 Mr. Covius, though he's an elder -- a former elder in 26 the church I then attended, should be criminally 27 prosecuted. I think his wrong against us is tortious. 28 At least he should lose his job. But I'm -- I'm -- at 20 1 least -- my opinion is worth nothing but -- 2 MS. MANDEL: Well, let me try to ask you again, 3 what -- what records do you have in your possession 4 from -- do -- do -- did you keep a file of the material 5 you got from IRS? Do you have -- 6 MR. PALMQUIST: I -- I have a -- 7 MS. MANDEL: -- stuff on your radio station? 8 MR. PALMQUIST: I have a mess at home -- 9 MS. MANDEL: Okay. 10 MR. PALMQUIST: -- like everybody else does. 11 MS. MANDEL: Yeah. 12 MR. PALMQUIST: And -- and -- and it still 13 exists and -- 14 MS. MANDEL: So you -- so you have that 15 material from -- 16 MR. PALMQUIST: Well, I -- I hope so. 17 MS. MANDEL: Somewhere in a box in the back of 18 a closet, maybe, yeah. If it's like my house that's 19 where it is. 20 MR. PALMQUIST: Well, whatever. I'm not going 21 to criticize your house. But -- 22 MS. MANDEL: Have -- have -- have you -- you 23 haven't had a chance to look -- 24 MR. PALMQUIST: I -- 25 MS. MANDEL: -- through that stuff, Ms. 26 Bridges? 27 MR. PALMQUIST: I haven't -- 28 MS. BRIDGES: I have received some 21 1 documentation, and a lot of it was Mr. Palmquist, it was 2 his correspondence to the IRS and a lot his journal 3 entries from during the time when all -- 4 MS. MANDEL: Right, but not the -- 5 MS. BRIDGES: -- of this was going on. 6 MS. MANDEL: -- not the printout -- not the 7 information back from IRS or -- 8 MS. BRIDGES: No. 9 MS. MANDEL: Okay. Do -- do you think you have 10 that in -- in all your -- 11 MR. PALMQUIST: Well -- 12 MS. MANDEL: -- stuff that you have? 13 MR. PALMQUIST: -- I can't give you a hundred 14 percent assurance but I can certainly apply some effort 15 at trying to find it. 16 Of course, speaking of the statute of 17 limitations I think the seven -- isn't it more than 18 seven years? So I -- I had the right to destroy those 19 records. Well, I don't do that. 20 MS. MANDEL: No, I'm just wondering if you 21 might have something from them -- 22 MR. PALMQUIST: I take -- 23 MS. MANDEL: -- that would be helpful -- 24 MR. PALMQUIST: Well, in -- 25 MS. MANDEL: -- to teasing it out here of what 26 they did and whether you had other records that might, 27 you know, show something that can be helpful to you. 28 So, that's why I was asking. 22 1 MR. PALMQUIST: In -- in terms of worthwhile 2 activities this is -- in comparison to other issues 3 before this Board, I think too trivial for the Board to 4 seek further detail on this. But I'd be happy to 5 cooperate -- 6 MS. MANDEL: It's apparently -- 7 MR. PALMQUIST: I'd be happy to cooperate -- 8 MS. MANDEL: -- not trivial to you. 9 MR. PALMQUIST: -- in any way I can. 10 My -- my general policy is when -- when a 11 record is allowable to be destroyed I take it to my shed 12 and stiff -- stick it into a file cabinet down at my 13 shed in the backyard, and hope for better days. 14 But I -- once again I -- I -- I don't know what 15 I can find or if what I can find would be helpful to 16 you. 17 MS. MANDEL: Okay. Thank you. 18 MR. HORTON: Thank you very much. 19 Further discussion, Members? 20 Mr. Runner. 21 MR. RUNNER: I -- I think what we'd -- well, at 22 least for me, and I think what I'm -- I'm hearing from 23 at least some of the other discussion here, is some 24 indication that helps us in helping you in this 25 determination. And you're right, nobody has to keep 26 their records beyond a certain time, but I would suggest 27 that this is your -- in your best interest to help us 28 then understand then exactly what we've got before us. 23 1 I mean, the bottom line for me is what I -- 2 what I would need to at least see is some kind of 3 indication in regards to how these -- how that cash -- 4 or how those dollars -- what -- what dollars came in in 5 what years so that then we can determine that, indeed, 6 there was an IRS mistake -- or miscalculation in regards 7 to the -- the attributing that then to the -- to -- to 8 the single year. 9 I think that's what FTB is looking for. 10 MS. APPLEBY: Yes. 11 MR. RUNNER: And I think at that point then 12 that helps solve the problem. With -- with -- without 13 that I'm -- it's -- it's very difficult then to -- to 14 move forward and so I think if, indeed, there's a pos -- 15 possibility that you might be able to put your hands on 16 such documents I would only suggest that will strengthen 17 your case. 18 MR. PALMQUIST: Yeah, that's a fair comment, 19 Mr. Runner, and I guess if I have any right to patience 20 on the part of the Board in regard to this issue it is 21 that I viewed my son's participation in this process as 22 a given until it was too late to do anything about it. 23 I was assured that he would be here with the records, 24 and he only a couple days ago made it clear to me that 25 he would -- he would not be cooperating. 26 MR. RUNNER: Okay. So, you think more time 27 could be helpful to you? 28 MR. PALMQUIST: Well, it's -- it is possible, 24 1 but I hate to extend a matter like this that is so 2 relatively trivial compared to the -- what you heard a 3 few minutes ago. This is just really so trivial. 4 The -- but I would like to clarify from my 5 certain knowledge, these -- these facts. The total 6 amount received in 2002 was $13,000. Thereafter, 7 regularly, every month, we did receive $3,000, it was -- 8 that was accounted for on my bookkeeping, my computer 9 bookkeeping as a capital gain receipt until a time 10 uncertain to me as I recall here -- I'm not certain of 11 the exact date, but midway in the -- in the 60 months 12 period of payments it became clear to me that the buyer 13 had not insured the property, as was his obligation 14 under the contract. And therefore we went into loud 15 noises. I hired an attorney in Fresno and he had an 16 attorney in Santa Barbara, and we went at it tooth and 17 toenail and accomplished nothing. 18 MR. RUNNER: So -- so -- 19 MR. PALMQUIST: And then -- so, therefore, I 20 began at that point to -- to account for the payments as 21 they came in as rent. 22 So midway in the contract -- 23 MR. RUNNER: You know, at this point I'm not 24 sure -- I think just showing the -- the -- the cash flow 25 in I would say would be your first objective. And then 26 once you can show that then it could be determined how 27 it might apply, whether it was a payment on a -- toward 28 a contract of sale or whether it was indeed rent and 25 1 then it would be handled accordingly -- 2 MR. PALMQUIST: I accounted for it -- 3 MR. RUNNER: -- depending upon that issue. 4 MR. PALMQUIST: -- but as -- as I look at it 5 now indeed it can't ever be viewed as rent if it's 6 viewed accurately because the man is going to end up to 7 be the recorded deed holder on this property because he 8 did make all 60 payments. 9 MR. RUNNER: Okay. 10 MR. PALMQUIST: But he has not fulfilled his 11 responsibility to compensate me for my damages in 12 connection with this error. 13 MR. RUNNER: I think that's going to be outside 14 of what our role is. 15 MR. PALMQUIST: Yeah, of course it is. 16 MR. RUNNER: Our role is just trying to figure 17 out how it is we might be able to attribute your -- 18 your -- your -- 19 MR. PALMQUIST: Yeah. 20 MR. RUNNER: -- these -- these payments over a 21 period of time as opposed to the single year. 22 MR. PALMQUIST: Well, I would be -- 23 MR. RUNNER: I think if that's -- 24 MR. PALMQUIST: -- I would be satisfied with -- 25 I don't know what I'd be satisfied with. I don't know, 26 it's all so confusing to me as a non-expert. 27 But I -- I've shared with you truthfully what 28 my experience has been. 26 1 MR. RUNNER: Okay. Thank you. 2 MR. HORTON: Thank you very much. 3 Member Yee. 4 MS. YEE: Thank you, Mr. Chairman. Just a 5 question of the Franchise Tax Board. Did you make any 6 attempt to request any of the audit documents or report 7 from the Internal Revenue Service? 8 MS. APPLEBY: The problem with the 2005 tax 9 year is that the Internal Revenue Service did not -- did 10 not account for this as an audit on Mr. Palmquist's 11 personal account. They accounted for all of this as 12 receipt of amended returns. So there's no indication 13 that an examination was opened on Mr. Palmquist for 2005 14 and there is no revenue agent report. 15 MS. YEE: Okay. All right. That's 16 unfortunate. 17 MR. PALMQUIST: I can respond to that. 18 MS. YEE: Yeah. 19 MR. PALMQUIST: That's amazing. 20 MS. YEE: I -- I -- 21 MR. PALMQUIST: It's just really amazing. 22 MS. YEE: I think we're all sympathetic in 23 terms of wanting to give you time if you think you can 24 locate documents that would be helpful, but even with 25 the modification that the Franchise Tax Board has 26 already made to the proposed assessment interest 27 continues to accrue. So, I want to -- 28 MR. PALMQUIST: Well, the -- I -- I think 27 1 what's really important for me to communicate to the 2 Board is that the -- the controversy which was -- was 3 never properly -- the wrongful act which was never 4 corrected has to do with $165,000 having wrongfully been 5 applied to my 2002 1040. That was wrongful and it's 6 never been -- and through the audit appeal that wrong 7 was never corrected. It was adjusted and played with 8 and -- and messed around with by appeals auditor Chris 9 Bodner, but -- but the -- the base fault has never been 10 corrected. 11 Now, would the correct handling of 2002, which 12 would have been no change because we had legitimate 13 business expenses that would have cancelled out even 14 that wrongful assessment in 2002, would that having been 15 done and -- and corrected properly end up in a claim on 16 the part of the State against us for a correct 17 accounting of the stream of $3,000 a month payments 18 coming in, I don't know. 19 But if you -- if you view the -- the core fault 20 as residing only in 2002 and the fact that there was an 21 accrual there that was unjustified and which even though 22 it was unjustified would have resulted in no change 23 because I had legitimate business expenses I was not 24 allowed to apply against it in that year of 2002, then 25 if that -- if the rule for the State is to accept the 26 IRS finding then the State is owed nothing. And I don't 27 think that's fair, either. 28 I think because of the mistake I was not dealt 28 1 with fairly in returns -- in regard to my relationship 2 with the IRS, but it isn't fair to the State to suffer 3 the consequences of what would be a correct -- a 4 correction -- an adequate correction of the 2002 error. 5 MS. YEE: Okay. And then my last question of 6 the Franchise Tax Board, the additional -- the 7 additional Federal changes that -- that triggered the 8 modification of the proposed assessment, what were those 9 and what were -- what -- what substantiated the decision 10 for you? 11 MS. APPLEBY: Well, when the original Notice of 12 Action went out the changes that were on the Notice of 13 Action was simply to the adjusted gross income because 14 that was the only information that we received from the 15 IRS as -- that's the only information we get when those 16 AGIs don't match. 17 So when I went back through and was trying to 18 essentially recreate Mr. Palmquist's tax return in an 19 effort to try to figure out where the changes were, I 20 took what the IRS had assessed him as a total tax amount 21 and matched that to what his taxable income must have 22 been Federally to be able to weed out what his 23 deductions were. And when I gave him those additional 24 deductions on the State side it lowered his -- his State 25 tax liability. 26 MS. YEE: Okay. So, they weren't really 27 discrete Federal changes that were identified, you kind 28 of backed into -- 29 1 MS. APPLEBY: Right, I had to back into -- 2 MS. YEE: -- the reconciliations? Okay. 3 MR. PALMQUIST: And I believe that -- that 4 though what she did would in my mind if I were to see 5 the process be a complete mystery to me, I think that 6 was a fair action on her part. 7 And -- and nevertheless the audit appeals on 8 the IRS side made a real mess of the original 9 transactional error and -- and com -- brought 10 complexities into it that were -- that -- that had 11 other -- still other implications. 12 So there's no simple way -- there's no simple 13 way to do math to come to a solution to this. 14 MS. YEE: Okay. Thank you. Thank you, Mr. 15 Chair. 16 MR. HORTON: Thank you very much. 17 Further discussion, Members? 18 Hearing none, is there a motion? 19 MS. YEE: I'll move to take the matter under 20 submission. 21 MR. HORTON: Moved -- been moved by Ms. Yee to 22 take the matter under submission. Second by Ms. Steel. 23 Without objection, Members, such will be the 24 order. 25 MR. PALMQUIST: Thank you for your courtesy. 26 MR. HORTON: So thank you so very much for 27 coming before us today. The Board will discuss your 28 matter later on this evening and send you a written 30 1 report of our decision. 2 MS. APPLEBY: Thank you. 3 MS. BRIDGES: Thank you. 4 MR. HORTON: Thank you as well to the 5 Department. 6 ---oOo--- 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31 1 REPORTER'S CERTIFICATE. 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, BEVERLY D. TOMS, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 June 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 31 13 pages constitute a complete and accurate transcription 14 of the shorthand writing. 15 16 Dated: July 12, 2011. 17 18 19 ____________________________ 20 BEVERLY D. TOMS 21 Hearing Reporter 22 23 24 25 26 27 28 32