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 OCTOBER 25, 2011 10 CORPORATE FRANCHISE AND PERSONAL INCOME TAX HEARING 11 APPEAL OF 12 ROBERT A. KIDWELL 13 NO. 530913 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 Appeals Staff: John Johnson Staff Counsel 15 16 For Franchise Tax Suzanne Small Board: Tax Counsel 17 18 Jozel Brunett Tax Counsel 19 20 For Appellant: Robert A. Kidwell Taxpayer 21 22 ---oOo--- 23 24 25 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 OCTOBER 25, 2011 4 ---oOo--- 5 MR. HORTON: Ms. Olson. 6 MS. OLSON: Our next item is B4, Robert A. 7 Kidwell. 8 Please come forward. 9 MR. HORTON: Mr. Johnson, would you please 10 introduce the issues in this case? 11 MR. JOHNSON: Good morning, Chairman Horton, 12 Members of the Board, John Johnson with Appeals. 13 The issue in this appeal is whether the refunds 14 are barred by the statute of limitations. 15 MR. HORTON: Thank you very much. 16 Would the taxpayer please introduce themselves 17 for the record? 18 You have ten minutes to make your presentation, 19 and we will return to you for five minutes on 20 rebuttal. 21 MR. KIDWELL: Good morning. My name's Robert 22 Kidwell. 23 First of all, I apologizes if I'm underdressed, 24 I'm not familiar with the proceedings here and I'm a 25 little self-conscious. 26 Okay. The one exception to the statute of 27 limitations, I understand, for -- the company -- the 28 State garnished my wages. There's a statute of 3 1 limitations of one year after they garnish the wages. 2 The one exception, I believe, is a financial disability. 3 I'd like to prove that. I'm an alcoholic. I 4 have proof of my alcoholism. I have a report, a court 5 reporter -- or a court psychologist reporting to the 6 court about my alcohol abuse, my recommended treatment, 7 testing and continued Alcoholics Anonymous treatment in 8 1997. So, that was fit our chronology. 9 I have a letter from my current doctor in -- or 10 in 2007 I told her that I was an alcoholic. Again that 11 would fit my chronology before I'd ever heard of this 12 hearing here. 13 And I've also been counseled at work for 14 alcohol abuse. Don't -- the records aren't available 15 because our company's been sold since then, but I could 16 probably, if necessary, find a vice president who 17 remembers what happened and give you some more evidence 18 in that direction. 19 The alcoholism is a federally-recognized 20 disability. Alcoholics Anonymous is accepted -- 21 accepted treatment for it. 22 And I understand it is hard for a normal person 23 who doesn't have a disease or the disability -- it 24 causes mental problems. It's mental blocks. 25 I don't take care of business like normal 26 people do and it's -- thank God it's sanctioned by the 27 federal government because, otherwise, I'd just say, 28 "Well, I didn't take care of my business and I lost 4 1 out." But because it is a disability, I, hopefully, 2 will get a little bit of leeway there. 3 From the treatment, in the Book of Alcoholics 4 Anonymous, it says, 5 "I am an alcoholic and cannot manage my life. 6 I'm seriously ill mentally and physically. My 7 problems pile up and are hard to solve. I make 8 decisions which place me in a position to be 9 hurt. I'm in flight from reality and I have -- 10 I'm a mental defective." 11 And the first basic -- the first step, the 12 basic tenets of alcoholism is that life has become 13 unmanageable. 14 Again, it's a disability. It's not me saying 15 this, it's the federal government accepting it when I 16 tell you this. 17 As evidence, I have -- well, I don't have my 18 San Diego water bills that were shut off several times. 19 I paid $25 reconnect fees for a $50 water bill. I don't 20 have my cable bills. I pay monthly late fees on my 21 cable bill, even though I have the money in the bank to 22 pay them -- the bills. 23 My electric bill I do have. I've given you all 24 copies of these things too. I have my electric bill. 25 It's been shut off eight times in under three years. 26 Part of that time I was living with a fiancee, she did 27 help me organize my finances a little better, so, I 28 was -- she kept me from probably another couple of 5 1 cutoffs. 2 My insurance has been cancelled, has lapsed or 3 has been threatened to lapse 18 times in the last five 4 years. 5 And, again, this is not something that's easy 6 for a normal person to understand. It doesn't work like 7 yours. I am disabled. I have a mental block. 8 The symptoms are all described in the AA book 9 and the government does recognize the disability as a 10 financial disability. 11 That's all I've got. 12 MR. HORTON: Thank you very much. 13 The Department, please introduce yourself for 14 the record. You have ten minutes to make your 15 presentation as well. 16 MS. SMALL: Good morning, Board Member -- 17 Chair -- Chairman, Board Members. 18 My name is Suzanne Small. Representing the 19 Franchise Tax Board with me is my colleague, Jozel 20 Brunett. 21 As Mr. Kidwell has indicated, he is asserting 22 that he is financially disabled as a suspension 23 mechanism for the statute of limitations. He filed 24 claims for refund outside the statute of limitations for 25 1998, 2001, 2002 and 2003. 26 At this point we had sent him a copy of what we 27 require at the Franchise Tax Board to establish 28 financial disability, which is our Financial Disability 6 1 Affidavit for a Physician. He apparently has not been 2 able to get that signed. 3 MR. HORTON: You were saying? 4 MS. SMALL: More gingerly, I was saying that we 5 sent him the package that includes all of the 6 information regarding the suspension of the statute of 7 limitations and the affidavits that we require so that 8 we can evaluate such a claim. 9 And the purpose for that entire mechanism is 10 that we cannot determine whether someone is financially 11 disabled or not based on any condition they may or may 12 not have as people with various conditions are able to 13 handle things very differently. That's why we rely on a 14 physician to make the determination of financial 15 disability. 16 And we need to know exactly the terms and time 17 of the disability so we can determine the suspension 18 period because we can only suspend during the periods 19 that the taxpayer is financially disabled. 20 We -- we have another copy here. We would be 21 happy to give it to him. If he can get that filled out, 22 we would be happy to consider it. 23 But at this point the documentation he has 24 given us does not establish that he was financially 25 disabled during the periods that would suspend the 26 statute of limitations. 27 MR. HORTON: Okay. On rebuttal? 28 MR. KIDWELL: Most diseases -- this is a little 7 1 bit more subjective, I guess, for diagnosis than most 2 diseases would be. 3 A doctor can't -- you can't take my blood and 4 tell -- or tell that I have a disease or I don't. 5 I -- the doctor cannot say, "Well, Bob 6 contracted alcoholism on January 1st of 2007." And -- 7 I'm sorry, this is the reason I did not respond with the 8 letter she's asking for -- with the affidavit she's 9 asking for. The doctor could not say on this date that 10 I began a disease and on this date the disease will be 11 over and you're financially able. That is not the way 12 it works. It's a little more subjective. 13 I never heard of an actual doctor, short of the 14 really severe cases, diagnosing alcoholism. I've heard 15 recommendations and reports. 16 So, there is no way that affidavit could be 17 done properly, the way she wants done. There is no 18 dates involved and no date that it -- that it would be 19 ending. 20 Alcoholism does not end, it's a lifetime 21 disease. That's why I've included all the evidence of 22 the financial disability for the Board to look at. It 23 covers five or six years. And, in fact, I couldn't get 24 copies of things that covered the years before that. 25 It was -- it's -- it's covered the whole -- the 26 whole duration. Couldn't get a doctor to sign that 27 affidavit for me to cover the duration for me, but I do 28 have a doctor that wrote a letter to you that says that 8 1 I admitted to her in 2007 that I was an alcoholic. And 2 that's the best I could do for a starting date, ending 3 date. 4 But the evidence is there -- it's all my 5 shutoffs, it's all the cancelled insurance. 6 I'm not a normal person. 7 MR. HORTON: Thank you. Discussion, Members? 8 Member Steel. 9 MS. STEEL: To the Franchise Tax Board, so, 10 statute is done? 11 That's why we are asking for financial 12 disability. And what's under the law about alcoholism? 13 MS. SMALL: Actually, what the statute says is 14 that they have to establish that they were financially 15 disabled. 16 It doesn't speak to any disease. 17 MS. STEEL: Exact disease? 18 MS. SMALL: It just speaks to the condition of 19 being unable to handle your affairs. 20 So, if we take the example of alcoholism, we 21 have had people with various nonphysical diseases, such 22 as schizophrenia, other types of conditions, and the 23 physician will say that, 24 "From this period to this period, this 25 person, due to whatever the condition was, . 26 was unable to handle their affairs." 27 That's what we need to rely on because you may 28 suffer all kinds of physical conditions that do not keep 9 1 you from handling your financial affairs. 2 MS. STEEL: I understand that. So, "physician" 3 means exactly what? Medical doctor only? 4 MS. SMALL: It means a licensed physician in 5 the State of California, which could be a psychiatrist 6 or medical doctor. 7 MS. STEEL: Or a psychologist? 8 MS. SMALL: Well, a psychologist is a doctor. 9 Psychologist we have not been able to accept because 10 they are not a physician. 11 MS. STEEL: Okay. So, you go to AA meetings 12 and you have -- have seen any medical doctor or can you 13 get anybody out there? 14 MR. KIDWELL: I'm sorry, let me -- respond, 15 please, one second. 16 The psychologist I did -- have the report from 17 is a PhD, so, he is a doctor, okay. 18 That -- that's. 19 MS. STEEL: Right. Let me go back to Franchise 20 Tax Board. 21 So, why we are not accepting psychologist? 22 MS. SMALL: Well, our statute -- 23 MS. STEEL: It has to be MD? 24 MS. SMALL: -- our statute's based on the 25 federal statute. And the federal statute indicates a 26 physician. 27 MS. STEEL: Okay. Just one more question to 28 Franchise Tax Board that Franchise Tax Board estimated 10 1 his income that we multiplied by four of mortgage 2 interest. 3 Is that usual -- usual practice these days 4 that, you know, most the people paying more on their 5 mortgages than, you know, more than 25 percent of their 6 income. 7 So, how -- what was the base that we ask 8 taxpayer that, you know, your income is four times of 9 your interest mortgage payment -- mortgage interest? 10 MS. SMALL: For the years in question, '01 11 through '03 -- 12 MS. STEEL: Right. 13 MS. SMALL: -- during that time, based on 14 studies done by the Franchise Tax Board, that was the 15 standard being used by lenders to issue mortgages was 16 that -- 17 MS. STEEL: When that study was done? 18 MS. SMALL: I believe it was done in 1999. 19 MS. STEEL: Okay. 20 Neal, can you give me that study later on? 21 Because that's really odd because -- so, lender said 22 that they're approving their mortgage if the mortgage 23 payment is one-fourth of their total income? 24 MS. SMALL: That was -- 25 MS. STEEL: Is that what you're saying? 26 MS. SMALL: -- the practice. 27 MS. STEEL: So, 1999? 28 MS. SMALL: I believe it was 1999. 11 1 MS. SMALL: So, this was studied by Franchise 2 Tax Board? 3 MS. SMALL: Correct. 4 MS. STEEL: Wow, that's amazing because, you 5 know, since mortgage -- the housing market just went up 6 so much there is just way in 1999 that, you know, it 7 came out for four times. 8 You know, they were looking at it, so, I love 9 to look at that study, that -- you know, if that's usual 10 practice. 11 My comment is done. 12 Thank you. 13 MR. HORTON: Further discussion, Members? 14 More recently, for the purposes of preventing 15 individuals from harming themselves as a result of 16 alcoholism, doctors have began to treat and to diagnose 17 alcoholism. 18 Is it possible that you could -- you said you 19 had a record from a PhD? 20 MR. KIDWELL: The court -- or the letter from 21 Dr. Adam in 1997 is -- he has a PhD. It's right 22 there on his letterhead (indicating). 23 MR. HORTON: Can you Dr. Adam refer you to 24 someone else that may be a specialist in this area? 25 MR. KIDWELL: I don't know, I've never asked. 26 I -- I could probably, if I need to, find a 27 specialist that -- to diagnose me as an alcoholic, is 28 that what you're asking for? 12 1 The problem would then be diagnosed me -- 2 diagnosing me during -- during the time frame to prove 3 my financial disability and that's what I hoped my 4 evidence, with all my electric bills, my insurance, my 5 cable bills that weren't paid, that would give you a 6 preponderance of evidence that I don't take care of my 7 business. That's my mental block. And that is my 8 disability. 9 MR. HORTON: It's that evidence that they would 10 primarily use. I mean, at a point in time they can 11 check your blood to see what your alcohol level is now, 12 but it doesn't speak to the psychology of alcoholism. 13 So that the process is that they will ask you a 14 series of questions and check to see your reactions 15 during that particular period of time. So, the evidence 16 that you have now and the discussion that you have had 17 with your psychologist may very well be sufficient for a 18 doctor that's been referred by your psychologist to 19 provide you the evidence that you need. 20 Does that make sense? 21 Department? 22 MS. BRUNETT: Yes, it does. 23 MR. KIDWELL: Now, would a diagnosis from this 24 doctor who saw me in 1997 -- we didn't leave on a mostly 25 amiable terms, so, he's not my best friend, but if he 26 were to diagnose me in 1997 as an alcoholic, would that 27 cover the time frame that we're talking about in the 28 affidavit she's looking for? 13 1 She's looking -- 2 MS. SMALL: If the PhD that he saw previously 3 has sufficient information to fill out this affidavit 4 that would be sufficient. 5 MR. HORTON: You indicated earlier in your 6 testimony that the doctor would not do it. 7 Are you -- were you referring to this 8 particular doctor? Or you couldn't find a -- a 9 licensed -- a doctor to -- to fill out the form? 10 MR. KIDWELL: Again, I think this is a 11 subjective form and unless a doctor diagnoses me, 12 catches me in the act of alcoholism and diagnoses me as 13 an alcoholic, I wasn't seeing a doctor at the time, so, 14 I did not have a doctor to do that. 15 My doctor, I -- shortly after I quit 16 drinking -- and again if I'm still a drunk in the gutter 17 right now, it doesn't -- it doesn't affect my case, as 18 long as can I show my financial disability in the time 19 frame we're looking at. 20 But I just, by coincidence, in 2007, I quit 21 drinking right about the time I started seeing a doctor 22 for normal, you know, go to the doctor every year kind 23 of thing when you turn 50. 24 So, I told her -- she asked me, "Any concerns?" 25 I said, "I'm an alcoholic, I --" 26 She said, "Okay. Good for you. You stopped 27 drinking." 28 But she did not diagnose me for the alcoholism. 14 1 She treats me for diabetes and high blood pressure, but 2 she doesn't -- it's symptoms of alcoholism, but she did 3 not diagnose me. 4 It's been no concern. My alcoholism has not 5 been a concern to her, my health has. So, I've not 6 gotten a diagnosis. 7 What she did was write a letter to you and tell 8 you that I told her in December of '07 that I was an 9 alcoholic. 10 Again, it's a little more subjective than most, 11 I'm more than willing to find a doctor if they can 12 diagnose me now, but I don't know what it's going to do 13 for the time frame that the State's looking for. 14 MR. HORTON: Okay. Those are the options 15 before you. 16 Further discussion, Members? 17 Mr. Runner. 18 MR. RUNNER: Just a quick question to clarify 19 then. 20 Am I understanding the FTB to say that if, 21 indeed, he gets that psychologist to fill out the 22 affidavit that that would be sufficient? 23 MS. SMALL: Well, he was indicating this PhD, 24 this Dr. Davis, who apparently is a court-appointed 25 evaluator for these matters. 26 MR. RUNNER: Uh-huh. 27 MS. SMALL: And that would -- 28 MR. RUNNER: That would satisfy? 15 1 MS. SMALL: We would accept that. 2 MR. RUNNER: Okay. So, that would be one path 3 that you could go down, correct? 4 MR. KIDWELL: Okay. 5 MR. RUNNER: Now the other path would be if 6 you -- do you -- are there the notes from Dr. Davis 7 right now available? 8 MS. SMALL: No, what it is is a report to the 9 court regarding the custody of his son. 10 MR. RUNNER: Okay. 11 MS. SMALL: Regarding the separation between 12 him and his wife. 13 MR. RUNNER: In -- and then in that -- there -- 14 okay. 15 Is there -- is there comment to that in regards 16 to the issue of the alcoholism? 17 MS. SMALL: Basically he talks about that 18 Mr. Kidwell had some drinking issues, but that -- that 19 as far as the evidence showed, he hadn't been drinking 20 in front of the child and that was his concern with 21 regard to the custody issues. 22 MR. RUNNER: Okay. so, the other path then 23 would -- to go down would be to find a physician who 24 could look at those notes and would make a comment, an 25 opinion, based upon those comments back from that 26 psychologist at that time to render an opinion in 27 regards to your state at that time based upon those 28 notes. 16 1 That would be sufficient also? 2 MS. SMALL: Yeah, if the physician feels 3 comfortable and can fill out this affidavit -- 4 MR. RUNNER: Okay. 5 MS. SMALL: -- that's up to the physician. 6 MR. RUNNER: Okay. I -- t seems to me you have 7 a couple of paths there to go down. 8 Here's -- here's the challenge that I have -- 9 okay. 10 The process for us requires that we have some 11 kind of third party diagnosis. What you're bringing to 12 us is evidence and you're asking us to do that 13 diagnosis. 14 MR. KIDWELL: Okay. 15 MR. RUNNER: And that's -- that's where, I 16 think, we would feel -- I would feel uncomfortable 17 because I don't know if that's the case and that's why 18 we would ask the professionals to be able to give you 19 that diagnosis. 20 It seemed to me you've got a couple of paths to 21 which you could go down in order to accomplish that. 22 MR. KIDWELL: I understand. But now what we're 23 asking me to do is ask a doctor again that I didn't 24 leave on the best of terms 15 or 20 years -- 15 years 25 ago to diagnose me now as an alcoholic from a couple 26 hours of sessions. 27 And if you look at the notes, I've got his 28 report, she -- Suzanne has the report here also that 17 1 says I'm an alcohol abuser, that says that I need for 2 the treatment from AA, intervention and one other thing. 3 He is -- again, it's a little subjective. 4 Doctors -- I've never heard of one coming out and 5 saying, "I diagnose you as an alcoholic. Here's your 6 medicine. And you can go home now." 7 MR. RUNNER: Here's the -- here's the challenge 8 that -- 9 MR. KIDWELL: I'm a little worried about just 10 leaving it for the doctor, yes or no. That's where my 11 tax liability is based on. 12 MR. RUNNER: Here's the challenge for me right 13 now and, that is, yeah, I think it designates that there 14 is an alcohol issue and whatnot. 15 I am not convinced that just alcoholism on its 16 own automatically means that everybody who is an 17 alcoholic is -- therefore, has a financial disability. 18 So, that's -- that's -- that is -- that is the 19 leap that we would have to make and I don't feel 20 comfortable making that leap. 21 Now, again, if some -- if either that 22 psychologist or another physician could make that -- 23 make that designation, yes, alcoholic, yes, financially 24 disabled, then I get that. 25 But right now, I think it's the simple argument 26 that says, "I am alcoholic, therefore, I am 27 automatically financially disabled," I need more 28 information. 18 1 MR. KIDWELL: I'm giving you a lot more 2 information in that I have the Book of Alcoholics 3 Anonymous, which does -- it's the Bible as far as the 4 State. 5 If I get arrested for drunk driving today, the 6 State accepts Alcoholics Anonymous as treatment for 7 that -- for my alco -- or for my drunk driving arrest. 8 And now if they tell you that I cannot handle 9 my own affairs, I'm not asking you to believe me, I'm 10 asking you to believe the book that they read. 11 It tells you that I cannot handle my affairs. 12 I am seriously ill, mentally and physically, my problems 13 pile up and are hard to solve and I make decisions which 14 place me a position to be hurt. 15 I'm not asking you to accept my diagnosis, I'm 16 asking you to accept -- if you accept my disease, and 17 again I will try to get this diagnosis done if that can 18 make a difference. 19 But I'm asking you to accept the Bible as far 20 as alcoholics are concerned and which the State does 21 accept for treatment as -- or for alcoholics. 22 MR. RUNNER: Thank you, sir. 23 MS. STEEL: I just want to -- 24 MR. HORTON: Member Steel. 25 MS. STEEL: -- clarify with the Franchise Tax 26 Board, I was asking you that, you know, what kind of 27 report that you are accepting from the taxpayers to 28 relieve -- I mean, get for financial disability. 19 1 And you said it has to be MD and now you say 2 it's court-appointed psychologist is okay. 3 So, what's the line here? 4 MS. SMALL: Well, actually, the physician who 5 was appointed is a PhD. 6 MS. STEEL: So, psychia -- psychologist, it's 7 Ph -- so, as long as psychologist they are PhD, 8 acceptable? 9 MS. SMALL: And licensed. 10 MS. STEEL: Is that what you're saying? 11 MS. SMALL: We have looked at those, yes. 12 MS. STEEL: What kind of license? Is it 13 court-appointed or just licensed to -- 14 MS. SMALL: Licensed by the State of 15 California. 16 MS. STEEL: -- so, you said that even they are 17 PhD, they are okay too? 18 Because I was asking you that, you know, it has 19 to be MD, yes, you said it was -- has to be MD and 20 physicians and now that it's okay to accept PhD, 21 licensed psychologist? 22 MS. SMALL: Correct. 23 MS. STEEL: Okay, thank you. 24 MR. HORTON: Further discussion, Members? 25 Hearing none, is there a motion? 26 MS. YEE: Move to take the matter under 27 submission. 28 MR. HORTON: It's been moved by Member Yee to 20 1 take the matter under submission. Second by -- 2 MS. STEEL: Second. 3 MR. HORTON: -- Member Steel. 4 Without objection, Members, such will be the 5 order. 6 Thank you for coming before us today. The 7 Board will take the matter under submission and send you 8 a written result -- a written report of our results. 9 Thank you. 10 MR. KIDWELL: Thank you. 11 ---o0o--- 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 21 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 OCTOBER 25, 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 21 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: November 9, 2011 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 22